10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended November 30, 2006

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____ to _____

Commission File Number 000-19364

HEALTHWAYS, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware	62-1117144
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

3841 Green Hills Village Drive, Nashville, TN 37215

(Address of Principal Executive Offices) (Zip Code)

615-665-1122

(Registrant’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed
since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o	Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x As of January 4, 2007 there were outstanding 34,921,291 shares of the Registrant’s Common Stock, par value $.001 per share.

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Healthways, Inc.
Form 10-Q
Table of Contents

			Page
Part I
	Item 1.	Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
	Item 4.	Controls and Procedures	26
Part II
	Item 1.	Legal Proceedings	27
	Item 1A.	Risk Factors	27
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
	Item 3.	Defaults Upon Senior Securities	28
	Item 4.	Submission of Matters to a Vote of Security Holders	28
	Item 5.	Other Information	28
	Item 6.	Exhibits	28

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Part I

Item 1.      Financial Statements

HEALTHWAYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS

	November 30, 2006			August 31, 2006
Current assets:
Cash and cash equivalents	$	161,902		$	154,792
Accounts receivable, net		60,419			52,978
Prepaid expenses and other current assets		10,799			9,397
Deferred tax asset		4,292			3,726
Total current assets		237,412			220,893
Property and equipment:
Leasehold improvements		17,191			16,009
Computer equipment and related software		77,679			75,524
Furniture and office equipment		19,071			18,542
		113,941			110,075
Less accumulated depreciation		(69,367	)		(63,525	)
		44,574			46,550
Long-term deferred tax asset		4,452			2,557
Other assets		3,019			4,052
Intangible assets, net		11,222			12,199
Goodwill, net		96,252			96,135
Total assets	$	396,931		$	382,386
See accompanying notes to the consolidated financial statements.

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HEALTHWAYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

LIABILITIES AND STOCKHOLDERS’ EQUITY

	November 30, 2006		August 31, 2006
Current liabilities:
Accounts payable	$	12,209	$	9,221
Accrued salaries and benefits		14,916		36,007
Accrued liabilities		7,234		5,748
Contract billings in excess of earned revenue		44,377		35,013
Income taxes payable		10,495		7,906
Current portion of long-term debt		185		180
Current portion of long-term liabilities		2,471		2,349
Total current liabilities		91,887		96,424
Long-term debt		188		236
Other long-term liabilities		11,267		10,853
Stockholders’ equity:
Preferred stock     $.001 par value, 5,000,000 shares       authorized, none outstanding		—		—
Common stock     $.001 par value, 75,000,000 shares authorized,       34,719,875 and 34,597,748 shares outstanding		35		35
Additional paid-in capital		147,098		140,216
Retained earnings		146,456		134,622
Total stockholders’ equity		293,589		274,873
Total liabilities and stockholders’ equity	$	396,931	$	382,386
See accompanying notes to the consolidated financial statements.

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HEALTHWAYS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except earnings per share data)

(Unaudited)

	Three Months Ended November 30,
	2006		2005
Revenues	$	117,055	$	90,592
Cost of services (exclusive of depreciation and   amortization shown below)		77,549		63,845
Selling, general and administrative expenses		12,584		10,123
Depreciation and amortization		6,818		5,663
Operating income		20,104		10,961
Interest expense		295		255
Income before income taxes		19,809		10,706
Income tax expense		7,975		4,250
Net income	$	11,834	$	6,456
Earnings per share:
Basic	$	0.34	$	0.19
Diluted	$	0.32	$	0.18
Weighted average common   shares and equivalents:
Basic		34,627		33,961
Diluted		36,608		35,973
See accompanying notes to the consolidated financial statements.

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HEALTHWAYS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Months Ended November 30, 2006

(In thousands)

(Unaudited)

	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Total
Balance, August 31, 2006	$	—	$	35	$	140,216	$	134,622	$	274,873
Net income		—		—		—		11,834		11,834
Exercise of stock options and other		—		—		1,435		—		1,435
Tax benefit of option exercises		—		—		1,403		—		1,403
Share-based employee compensation expense		—		—		4,044		—		4,044
Balance, November 30, 2006	$	—	$	35	$	147,098	$	146,456	$	293,589
See accompanying notes to the consolidated financial statements.

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HEALTHWAYS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended November 30,
	2006			2005
Cash flows from operating activities:
Net income	$	11,834		$	6,456
Adjustments to reconcile net income to net cash provided by   operating activities, net of business acquisitions:
Depreciation and amortization		6,818			5,663
Amortization of deferred loan costs		120			117
Share-based employee compensation expense		4,044			3,221
Excess tax benefits from share-based payment arrangements		(1,240	)		(3,842	)
Increase in accounts receivable, net		(7,441	)		(9,886	)
Increase in other current assets		(500	)		(1,167	)
Increase in accounts payable		2,988			1,058
Decrease in accrued salaries and benefits		(21,091	)		(10,371	)
Increase in other current liabilities		14,007			15,167
Deferred income taxes		(2,461	)		(2,822	)
Other		520			741
Decrease in other assets		1,767			159
Net cash flows provided by operating activities		9,365			4,494
Cash flows from investing activities:
Acquisition of property and equipment		(3,865	)		(4,716	)
Business acquisitions, net of cash acquired		(866	)		(22	)
Other, net		(13	)		—
Net cash flows used in investing activities		(4,744	)		(4,738	)
Cash flows from financing activities:
Increase in restricted cash		—			(28	)
Deferred loan costs		(105	)		(569	)
Excess tax benefits from share-based payment arrangements		1,240			3,842
Payments of long-term debt		(43	)		(26	)
Exercise of stock options		1,397			2,235
Net cash flows provided by financing activities		2,489			5,454
Net increase in cash and cash equivalents		7,110			5,210
Cash and cash equivalents, beginning of period		154,792			63,467
Cash and cash equivalents, end of period	$	161,902		$	68,677

See accompanying notes to the consolidated financial statements.

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HEALTHWAYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)           Interim Financial Reporting

The accompanying consolidated financial statements of Healthways, Inc. and its wholly-owned subsidiaries for the three months ended November 30, 2006 and 2005 are unaudited. However, in our opinion, the financial statements reflect all adjustments consisting of normal, recurring accruals necessary for a fair presentation. We have reclassified certain items in prior periods to conform to current classifications.

We have omitted certain financial information that is normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States but that is not required for interim reporting purposes. You should read the accompanying consolidated financial statements in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2006.

(2)           Share-Based Compensation

                We have several shareholder-approved stock incentive plans for employees and directors. We currently have three types of share-based awards outstanding under these plans: stock options, restricted stock, and restricted stock units. We believe that such awards align the interests of our employees and directors with those of our stockholders. We account for share-based compensation in accordance with SFAS No. 123(R), “Share-Based Payment.” For the three months ended November 30, 2006 and 2005, we recognized share-based compensation costs of $4.0 million and $3.2 million, respectively.

In October 2006, we granted annual equity awards, including stock options and restricted stock units, for fiscal 2006 performance. A summary of our stock options as of November 30, 2006 and changes during the three months then ended is presented below:

Options	Shares (000s)			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($000s)
Outstanding at September 1, 2006		5,836		$	18.87
Granted		312			42.84
Exercised		(120	)		11.81
Forfeited or expired		(13	)		22.89
Outstanding at November 30, 2006		6,015			20.24		6.1	$	155,615
Exercisable at November 30, 2006		3,507			11.18		5.5	$	122,063

The weighted-average grant-date fair value of options granted during the three months ended November 30, 2006 was $21.29.

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The following table shows a summary of our restricted stock and restricted stock units (“nonvested shares”) as of November 30, 2006 as well as activity during the three months then ended.

Nonvested Shares	Shares (000s)			Weighted- Average Grant-Date Fair Value
Nonvested at September 1, 2006		160		$	43.82
Granted		167			43.04
Vested		(3	)		38.11
Forfeited		—			—
Nonvested at November 30, 2006		324		$	43.44

(3)           Goodwill

The change in the carrying amount of goodwill during the three months ended November 30, 2006 is shown below:

(In $000s)
Balance, August 31, 2006	$	96,135
Health IQ purchase price adjustment		117
Balance, November 30, 2006	$	96,252

The Health IQ Diagnostics, LLC (“Health IQ”) purchase price adjustment primarily relates to an earn-out agreement under which we are obligated to pay the former stockholders of Health IQ additional purchase price equal to a percentage of revenues recognized from Health IQ’s programs in each of the fiscal quarters during the three-year period ending August 31, 2008.

(4)           Intangible Assets

Intangible assets subject to amortization at November 30, 2006 consist of the following:

	Gross Carrying Amount		Accumulated Amortization		Net
(In $000s)
Acquired technology	$	10,163	$	6,606	$	3,557
Customer contracts		9,179		5,978		3,201
Other		200		80		120
Total	$	19,542	$	12,664	$	6,878

Acquired technology, customer contracts, and other intangible assets are being amortized on a straight-line basis over a five-year estimated useful life. Total amortization expense for the three months ended November 30, 2006 and 2005 was $1.0 million. Estimated amortization expense is $2.9 million for the remainder of fiscal 2007, $3.9 million for fiscal 2008 and $40,000, $10,000, and zero for the three fiscal years thereafter, respectively.

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Intangible assets not subject to amortization at November 30, 2006 and 2005 consist of a trade name of $4.3 million.

(5)           Derivative Investments and Hedging Activities

                SFAS No. 133, “Accounting for Derivative Investments and Hedging Activities,” as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires companies to record all derivatives at estimated fair value as either assets or liabilities on the balance sheet and to recognize the unrealized gains and losses, the treatment of which depends on whether the derivative is designated as a hedging instrument.

As a result of our investment in international initiatives, we are exposed to foreign currency exchange rate risks. A significant portion of these risks is economically hedged with currency options and forwards contracts in order to minimize our exposure to fluctuations in foreign currency exchange rates. Principal currencies hedged include the Euro and British pound. These derivative instruments serve as economic hedges and do not qualify for hedge accounting treatment under SFAS No. 133. Accordingly, they require current period mark-to-market accounting, with any change in fair value being recorded each period in the statement of operations. We record the fair market value of our derivatives, based on information provided by reliable third parties, as other current assets and accrued liabilities. We routinely monitor our foreign currency exposures to maximize the overall effectiveness of our foreign currency hedge positions.

(6)           Long-Term Debt

On September 19, 2005, we entered into a Second Amended and Restated Revolving Credit Loan Agreement (the “Second Amended Credit Agreement”). The Second Amended Credit Agreement provides us with a $250.0 million revolving credit facility, including a swingline sub facility of $10.0 million and a $75.0 million sub facility for letters of credit, together with an uncommitted incremental accordion facility of $50.0 million, and expires on September 19, 2010. As of November 30, 2006, our available line of credit totaled $249.1 million.

The Second Amended Credit Agreement requires us to repay the principal on any loans at the maturity date of September 19, 2010. Borrowings under the Second Amended Credit Agreement generally bear interest, at our option, at LIBOR plus a spread of 0.875% to 1.5%, which is dependent on the ratio of total funded debt to EBITDA, or at the prime rate. The Second Amended Credit Agreement also provides for a fee ranging between 0.175% and 0.3% of unused commitments. The Second Amended Credit Agreement is secured by guarantees from our active domestic subsidiaries and by security interests in substantially all of our and our subsidiaries’ assets.

The Second Amended Credit Agreement contains various financial covenants, which require us to maintain, as defined, ratios or levels of (i) total funded debt to EBITDA, (ii) fixed charge coverage, and (iii) net worth. It also restricts the payment of dividends and limits the amount of repurchases of the Company’s common stock. As of November 30, 2006, we were in compliance with all of the covenant requirements of the Second Amended Credit Agreement.

As of November 30, 2006, there were letters of credit outstanding under the Second Amended Credit Agreement for $0.9 million primarily to secure our ability to pay claims under our workers compensation high-deductible policy.

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(7)           Commitments and Contingencies

Pursuant to an earn-out agreement executed in connection with the acquisition of certain assets of Health IQ in June 2005, we are obligated to pay the former stockholders of Health IQ additional purchase price equal to a percentage of revenues recognized from Health IQ’s programs in each of the fiscal quarters during the three-year period ending August 31, 2008.

In June 1994, a former employee whom we dismissed in February 1994 filed a “whistle blower” action on behalf of the United States government. Subsequent to its review of this case, the federal government determined not to intervene in the litigation. The employee sued Healthways, Inc. and our wholly-owned subsidiary, American Healthways Services, Inc. (“AHSI”), as well as certain named and unnamed medical directors and one named client hospital, West Paces Medical Center (“WPMC”), and other unnamed client hospitals.

Healthways, Inc. has since been dismissed as a defendant; however, the case is still pending against AHSI before the United States District Court for the District of Columbia. In addition, WPMC has settled claims filed against it as part of a larger settlement agreement that WPMC’s parent organization, HCA Inc., reached with the United States government.

The complaint alleges that AHSI, the client hospitals and the medical directors violated the federal False Claims Act by entering into certain arrangements that allegedly violated the federal anti-kickback statute and provisions of the Social Security Act prohibiting physician self-referrals. Although no specific monetary damage has been claimed, the plaintiff, on behalf of the federal government, seeks treble damages plus civil penalties and attorneys’ fees. The plaintiff also has requested an award of 30% of any judgment plus expenses. In February 2006, WPMC filed an arbitration claim seeking indemnification from us for certain costs and expenses incurred by it in connection with the case.  

In the action by the former employee, discovery is substantially complete but no trial date has been set. The parties have had initial discussions regarding their respective positions in the case; however, no resolution of this case has been reached or can be assured prior to the case proceeding to trial. In the action by WPMC, initial arbitration proceedings were commenced during the third quarter of fiscal 2006.

We believe that we have conducted our operations in full compliance with applicable statutory requirements and that we have meritorious defenses to the claims made in the case and the related arbitration proceeding, and intend to contest the claims vigorously. Nevertheless, it is possible that resolution of these legal matters could have a material adverse effect on our consolidated results of operations in a particular financial reporting period. We believe that we will continue to incur legal expenses associated with the defense of these matters which may be material to our consolidated results of operations in a particular financial reporting period. However, we believe that any resolution of this case and all related matters will not have a material effect on our liquidity or financial condition.

We are also subject to other claims and suits that arise from time to time in the ordinary course of our business. While management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact on our financial position, our results of operations, or our cash flows, these matters are subject to inherent uncertainties, and management’s view of these matters may change in the future.

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(8)           Comprehensive Income

Comprehensive income, net of income taxes, was $11.9 million and $6.5 million for the three months ended November 30, 2006 and 2005, respectively.

(9)           Subsequent Events

On December 1, 2006, we acquired Axia Health Management, Inc. (“Axia”), a national provider of preventive health and wellness programs, for approximately $458.0 million in cash. At the closing, we deposited $35.0 million of the purchase price to be held in escrow until approximately December 31, 2007 to satisfy any potential indemnification claims. We also deposited an additional $9.0 million of the purchase price to be held in escrow to satisfy a portion of certain potential earnout obligations owed to certain persons who had previously sold certain businesses to Axia. We funded the acquisition through the use of approximately $108.0 million in cash and $350.0 million in borrowings under a $600.0 million credit facility, as discussed below.

On December 1, 2006, we entered into a Third Amended and Restated Revolving Credit and Term Loan Agreement (the “Third Amended Credit Agreement”). The Third Amended Credit Agreement provides us with a $400.0 million revolving credit facility, including a swingline sub facility of $10.0 million and a $75.0 million sub facility for letters of credit, a $200.0 million term loan facility, and an uncommitted incremental accordion facility of $200.0 million.

Revolving advances under the Third Amended Credit Agreement generally bear interest, at our option, at 1) LIBOR plus a spread of 0.875% to 1.750% or 2) the greater of the federal funds rate plus 0.5%, or the prime rate, plus a spread of 0.000% to 0.250%. Term loan borrowings under the Third Amended Credit Agreement generally bear interest, at our option, at 1) LIBOR plus 1.750% or 2) the greater of the federal funds rate plus 0.5%, or the prime rate, plus 0.250%. The Third Amended Credit Agreement also provides for a fee ranging between 0.150% and 0.300% of unused commitments. The Third Amended Credit Agreement is secured by guarantees from most of the Company’s domestic subsidiaries and by security interests in substantially all of the Company’s and such subsidiaries’ assets.

We are required to repay outstanding revolving loans on the revolving commitment termination date, which is December 1, 2011. We are required to repay term loans in quarterly principal installments aggregating $0.5 million each, commencing on March 31, 2007, and the entire unpaid principal balance of the term loans is due and payable at maturity on December 1, 2013.

The Third Amended Credit Agreement contains various financial covenants, which require us to maintain, as defined, ratios or levels of (i) total funded debt to EBITDA, (ii) fixed charge coverage, and (iii) net worth. It also restricts the payment of dividends and limits the amount of repurchases of the Company’s common stock. On December 21, 2006, we entered into an amortizing fixed interest rate swap agreement for the management of interest rate exposure. By entering into this interest rate swap agreement we effectively converted $230.0 million of floating rate debt to a fixed obligation with an interest rate of 4.995%. The principal value of the swap arrangement amortizes over a 39-month period and terminates on March 31, 2010. We currently believe that we will be able to meet the hedge accounting criteria under SFAS No. 133 in accounting for the interest rate swap agreement.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Founded in 1981, Healthways, Inc. (the “Company”) provides specialized, comprehensive Health and Care Support^SM  programs and services, including disease management, high-risk care management and Outcomes Driven Wellness^SM  programs to health plans, governments, employers, and hospitals in all 50 states, the District of Columbia, Puerto Rico, and Guam. These services include, but are not limited to:

• providing members with educational materials and personal interactions with highly trained nurses and other health-care professionals designed to create and sustain healthier behaviors;

• incorporating current evidence-based clinical guidelines in interventions to optimize patient care;

• developing care support plans and motivating members to set attainable goals for themselves;

• providing local market resources to address acute episode interventions;

• coordinating members’ care with local health-care providers; and

• fostering wellness and prevention through total population screening, health risk assessments, and supportive interventions.

Our integrated Health and Care Support programs serve entire customer populations through member and physician Health and Care Support interventions, advanced neural network predictive modeling, and a confidential, secure Internet-based application that provides patients and physicians with individualized health information. Our programs enable our customers to develop relationships with all of their members and to identify those at highest risk for a health problem, allowing for early interventions.

Our programs are designed to help people lead healthier lives by making sure they understand and follow doctors’ orders including medication compliance, are aware of and can recognize early warning signs associated with a major health episode, and are setting achievable goals for themselves to improve their current health status.

We believe that our patient and physician support regimens, delivered and/or supervised by a multi-disciplinary team, have demonstrated that they assist in providing more effective care for the enrollee populations diagnosed with one or more diseases or conditions, which will improve the health status of the enrollee populations with the disease or condition and reduce both the short-term and long-term health-care costs for these enrollees. In addition, our consumer-directed health support services enable health plans and employers to reach and engage everyone in their covered populations through interventions which are sensitive and specific to each individual’s health risks and needs, thereby motivating behavior change and generating measurable cost savings.

Our integrated Health and Care Support product line includes programs for people with diabetes, coronary artery disease, heart failure, asthma, chronic obstructive pulmonary disease, end-stage renal disease, cancer, chronic kidney disease, depression, tobacco addiction, high-risk obesity, acid-related stomach disorders, atrial fibrillation, decubitus ulcer, fibromyalgia, hepatitis C, inflammatory bowel disease, irritable bowel syndrome, low-back pain, osteoarthritis, osteoporosis, and urinary incontinence. We also provide high-risk care management and population health support. We design our programs to create and maintain key desired behaviors of each program member and of the providers who care for them in order to improve member health status, thereby reducing health-care costs. The programs incorporate interventions designed to optimize member care and are based on the most up-to-date, evidence-based clinical guidelines.

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The flexibility of our programs allows customers to enter the Health and Care Support market at the level they deem appropriate for their organization. Customers may select a single chronic disease or a total-population approach, in which all members of the customer’s population receive the benefit of our programs at a single cost.

On December 1, 2006, we acquired Axia, a national provider of preventive health and wellness programs, for approximately $458.0 million in cash. At the closing, we deposited $35.0 million of the purchase price to be held in escrow until approximately December 31, 2007 to satisfy any potential indemnification claims. We also deposited an additional $9.0 million of the purchase price to be held in escrow to satisfy a portion of certain potential earnout obligations owed to certain persons who had previously sold certain business units to Axia. We financed the acquisition through a combination of cash on hand and borrowings under a $600.0 million credit facility, as discussed below in “Liquidity and Capital Resources.”

Highlights of Performance for the Three Months Ended November 30, 2006

• Revenues increased 29.2% for the three months ended November 30, 2006 over the three months ended November 30, 2005.

• Net income for the three months ended November 30, 2006 increased 83.3% over the three months ended November 30, 2005.

• Actual lives under management increased 35.7% from November 30, 2005 to November 30, 2006, which included a 45.2% increase in self-insured employer actual lives under management to 967,000 at November 30, 2006 from ­666,000 at November 30, 2005.

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements, which are based upon current expectations and involve a number of risks and uncertainties. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” or “continue.” In order for us to use the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution you that the following important factors, among others, may affect these forward-looking statements. Consequently, actual operations and results may differ materially from those expressed in the forward-looking statements. The important factors include but are not limited to:

• our ability to sign and implement new contracts for Health and Care Support services;

• our ability to accurately forecast performance and the timing of revenue recognition under the terms of our contracts ahead of data collection and reconciliation in order to provide forward-looking guidance;

• the timing and costs of implementation, and the effect, of regulations and interpretations relating to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003;

• our ability to anticipate the rate of market acceptance of Health and Care Support solutions and the individual market dynamics in potential international markets and our ability to accurately forecast the costs necessary to implement our strategy of establishing a presence in these markets;

• the risks associated with foreign currency exchange rate fluctuations and our ability to hedge against such fluctuations;

• our ability to effectively manage any growth that we might experience;

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• our ability to retain existing health plan customers if they decide to take programs in-house or are acquired by other health plans which already have or are not interested in Health and Care Support programs;

• the risks associated with a significant concentration of our revenues with a limited number of customers;

• our ability to effect cost savings and clinical outcomes improvements under Health and Care Support contracts and reach mutual agreement with customers with respect to cost savings, or to effect such savings and improvements within the time frames contemplated by us;

• our ability to collect contractually earned performance incentive bonuses;

• the ability of our customers to provide timely and accurate data that is essential to the operation and measurement of our performance under the terms of our contracts;

• our ability to favorably resolve contract billing and interpretation issues with our customers;

• increased leverage incurred in conjunction with the acquisition of Axia and our ability to service our debt and make principal and interest payments as those payments become due;

• our ability to integrate the operations of Axia and other acquired businesses or technologies into our business and to achieve the results provided in our guidance with respect to Axia;

• our ability to develop new products and deliver outcomes on those products, including those anticipated from our strategic relationship with Medco, Inc.;

• our ability to effectively integrate new technologies and approaches, such as those encompassed in our Health and Care Support initiatives or otherwise licensed or acquired by us, into our Health and Care Support platform;

• our ability to renew and/or maintain contracts with our customers under existing terms or restructure these contracts on terms that would not have a material negative impact on our results of operations;

• our ability to implement our Health and Care Support strategy within expected cost estimates;

• our ability to obtain adequate financing to provide the capital that may be necessary to support the growth of our operations and to support or guarantee our performance under new contracts;

• unusual and unforeseen patterns of health care utilization by individuals with diabetes, cardiac, respiratory and/or other diseases or conditions for which we provide services;

• the ability of our customers to maintain the number of covered lives enrolled in the plans during the terms of our agreements;

• our ability to attract and/or retain and effectively manage the employees required to implement our agreements;

• the impact of litigation involving us and/or our subsidiaries;

• the impact of future state and federal health care and other applicable legislation and regulations on our ability to deliver our services and on the financial health of our customers and their willingness to purchase our services;

• current geopolitical turmoil and the continuing threat of domestic or international terrorism;

• general worldwide and domestic economic conditions and stock market volatility; and

• other risks detailed in our other filings with the Securities and Exchange Commission.

We undertake no obligation to update or revise any such forward-looking statements.

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Customer Contracts

Contract Terms

We generally determine our contract fees by multiplying a contractually negotiated rate per member per month (“PMPM”) by the number of members covered by our services during the month. We set the PMPM rates during contract negotiations with customers based on the value we expect our programs to create and a sharing of that value between the customer and the Company. In some contracts, the PMPM rates may differ between a customer’s lines of business [e.g. Preferred Provider Organizations (“PPO”), Health Maintenance Organizations (“HMO”), Medicare Advantage]. Contracts with health plans generally range from three to seven years with provisions for subsequent renewal; contracts between our health plan customers and their self-insured employer accounts typically have one-year terms. Some contracts allow the customer to terminate early under certain conditions.

Some contracts provide that a portion (up to 100%) of our fees may be refundable to the customer (“performance-based”) if our programs do not achieve, when compared to a baseline year, a targeted percentage reduction in the customer’s health-care costs and selected clinical and/or other criteria that focus on improving the health of the members. Approximately 7% of revenues recorded during the three months ended November 30, 2006 were performance-based and were subject to final reconciliation as of November 30, 2006. We anticipate that this percentage will fluctuate due to the level of performance-based fees in new contracts, revenue recognition associated with performance-based fees, and the timing of data reconciliation, which varies according to contract terms. A limited number of contracts also provide opportunities for us to receive incentive bonuses in excess of the contractual PMPM rate if we exceed contractual performance targets.

We are participating in two Medicare Health Support (“MHS”) pilots awarded under the Chronic Care Improvement Program authorized by the Medicare Modernization Act of 2003. The pilots will operate for 36 months and may be terminated by either party with six months written notice. We began operating one pilot in August 2005 to serve 20,000 Medicare fee-for-service beneficiaries in Maryland and the District of Columbia. All fees under this pilot are performance-based. In addition, in September 2005 we began serving 20,000 beneficiaries in Georgia in collaboration with CIGNA HealthCare, Inc. The majority of our fees under our contract with CIGNA are performance-based. Both of the pilots are for complex diabetes and congestive heart failure disease management services and are operationally similar to our programs for commercial and Medicare Advantage health plan populations.

In June 2006, we signed an amendment to our cooperative agreement with the Centers for Medicare & Medicaid Services (“CMS”) for our MHS stand-alone pilot in Maryland and the District of Columbia, which, among other things, enabled us to provide congestive heart failure programs to approximately 4,500 additional Medicare fee-for-service beneficiaries for two years beginning on August 1, 2006 (the “refresh population”). All fees for the refresh population are performance-based.

Information Systems

Our contracts require sophisticated management information systems to help us manage the care of large populations with targeted chronic diseases or other medical conditions and to report the impact of our programs on clinical and financial outcomes. We have developed and are continually expanding and improving our proprietary clinical, data management, and reporting systems, to continue to meet our information management needs for our Health and Care Support services. Due to the anticipated expansion and improvement in our information management systems, we expect to continue making significant investments in our information technology software and hardware and in our information technology staff.

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Contract Revenues

Our contract revenues depend on the contractual terms we establish and maintain with customers to provide Health and Care Support services to their members. Some contracts allow the customer to terminate early under certain conditions. Restructurings and possible terminations at or prior to renewal could have a material negative impact on our results of operations and financial condition.

Approximately 28% of our revenues for the three months ended November 30, 2006 were derived from one customer that comprised more than 10% of our revenues for the period. The loss of this customer or any other large customer or a reduction in the profitability of any contract with this customer would have a material negative impact on our results of operations, cash flows, and financial condition.

Actual Lives under Management

We measure the volume of participation in our programs by the actual number of people who are benefiting from our services, which is reported as “actual lives under management.” Backlog represents the estimated annualized revenue at target performance associated with signed contracts at November 30, 2006 for which we have not yet begun providing services. The number of actual lives under management and annualized revenue in backlog are shown below at November 30, 2006 and November 30, 2005.

At November 30,	2006		2005
Actual lives under management		2,462,000		1,814,000
Annualized revenue in backlog (in $000s)	$	7,867	$	40,172

We have seen increasing demand for our Health and Care Support services from self-insured employer accounts, most of which are contracted through the Administrative Services Only (ASO) line of business with our health plan customers and for which our health plan customers do not assume medical cost risk but provide primarily administrative claim and health network access services. Signed contracts between these self-insured employers and our health plan customers are incorporated in our contracts with our health plan customers, and these program-eligible members are included in the lives under management or the annualized revenue in backlog reported in the table above, as appropriate.

Business Strategy

Our primary strategy is to create value for health plans, governments, employers, and hospitals through Health and Care Support programs and services that improve the quality and affordability of health-care. We plan to continue using our scaleable state-of-the-art care enhancement centers, medical information content, and proprietary technologies to gain a competitive advantage in delivering our Health and Care Support services.

We expect to continue adding services to our product mix that extend our programs beyond a chronic disease focus and provide services to individuals who currently have, or face the risk of developing, one or more additional medical conditions. We believe that we can achieve improvements in care and significant cost savings by addressing care and treatment requirements for these additional selected diseases and conditions and by providing wellness and preventive programs, which will enable us to address an increasingly larger percentage of a customer’s population and total health-care costs. In December 2006, we acquired Axia, a national provider of preventive health and wellness programs, which we believe furthers our continuing strategy to provide, or enable our customers to provide, a full

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spectrum of integrated, personalized, proven and evidence-based interventions to maintain or improve health and productivity.

In May 2006 we entered into a strategic partnership with Medco, Inc., a pharmacy benefit management company, to distribute existing programs and to develop and distribute integrated medical and pharmaceutical management programs. We expect to continue developing proprietary, proactive health support products and services for whole populations across the continuum of care, including next generation integrated disease management and wellness solutions.

We anticipate that we will incur significant costs during the remainder of fiscal 2007 to enhance and expand our clinical programs and data and financial reporting systems, pursue opportunities in international markets, enhance our information technology support, integrate the operations of Axia, and open additional or expand current care enhancement centers as needed. We may add some of these new capabilities and technologies through internal development, strategic alliances with other entities and/or through selective acquisitions.

Critical Accounting Policies

We describe our accounting policies in Note 1 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2006. We prepare the consolidated financial statements in conformity with U.S. generally accepted accounting principles, which require us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

We believe the following accounting policies are the most critical in understanding the estimates and judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows.

Revenue Recognition  

We generally determine our contract fees by multiplying a contractually negotiated rate per member per month (“PMPM”) by the number of members covered by our services during the month. We set the PMPM rates during contract negotiations with customers based on the value we expect our programs to create and a sharing of that value between the customer and the Company. In some contracts, the PMPM rates may differ between a customer’s lines of business (e.g., PPO, HMO, Medicare Advantage). Contracts with health plans generally range from three to seven years with provisions for subsequent renewal; contracts between our health plan customers and their self-insured employer accounts typically have one-year terms.

Some contracts provide that a portion (up to 100%) of our fees may be refundable to the customer (“performance-based”) if our programs do not achieve, when compared to a baseline year, a targeted percentage reduction in the customer’s health-care costs and selected clinical and/or other criteria that focus on improving the health of the members. Approximately 7% of revenues recorded during the three months ended November 30, 2006 were performance-based and were subject to final reconciliation as of November 30, 2006. We anticipate that this percentage will fluctuate due to the level of performance-based fees in new contracts, revenue recognition associated with performance-based fees, and the timing of data reconciliation, which varies according to contract terms. A limited number of contracts also provide opportunities for us to receive incentive bonuses in excess of the contractual PMPM rate if we exceed contractual performance targets.

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We bill our customers each month for the entire amount of the fees contractually due for the prior month’s enrollment, which typically includes the amount, if any, that is performance-based and may be subject to refund should we not meet performance targets. Contractually, we cannot bill for any incentive bonus until after contract settlement.

We recognize revenue as follows: 1) we recognize the fixed portion of the monthly fees as revenue during the period we perform our services; 2) we recognize the performance-based portion of the monthly fees based on the most recent assessment of our performance, which represents the amount that the customer would legally be obligated to pay if the contract were terminated as of the latest balance sheet date; and 3) we recognize additional incentive bonuses based on the most recent assessment of our performance, to the extent we consider such amounts collectible.

We assess our level of performance for our contracts based on medical claims and other data that the customer is contractually required to supply. A minimum of four to six months’ data is typically required for us to measure performance. In assessing our performance, we may include estimates such as medical claims incurred but not reported and a medical cost trend compared to a baseline year. In addition, we may also provide contractual reserves, when appropriate, for billing adjustments at contract reconciliation.

Substantially all of the fees under both the MHS pilots and the refresh population in which we are participating are performance-based. The pilots require that, by the end of the third year, we achieve a cumulative net savings (total savings for the intervention population as compared to the control group less fees received from CMS) of 5.0%. The cumulative net savings targets are lower at the beginning of the pilots and increase in gradual increments, ending with a cumulative net savings target of 5.0% at the end of the pilots. Under the amendment of our stand-alone MHS pilot in Maryland and the District of Columbia, the refresh population will be a separate cohort served for two years, by the end of which the program is expected to achieve a 2.5% cumulative net savings when compared to a new control cohort. Under the stand-alone pilot, savings in excess of target achieved in either the original cohort or the refresh cohort can be applied against any savings deficit that might occur in the other cohort. Although we receive the medical claims and other data associated with the intervention group under these pilots on a monthly basis, we assess our performance against the control group under these pilots based on quarterly performance reports received from CMS’ financial reconciliation contractor.

If data is insufficient or incomplete to measure performance, or interim performance measures indicate that we are not meeting performance targets, we do not recognize performance-based fees subject to refund as revenues but instead record them in a current liability account “contract billings in excess of earned revenue.” Only in the event we do not meet performance levels by the end of the measurement period, typically one year, are we contractually obligated to refund some or all of the performance-based fees. We would only reverse revenues that we had already recognized if performance to date in the measurement period, previously above targeted levels, subsequently dropped below targeted levels. Historically, any such adjustments have been immaterial to our financial condition and results of operations.

During the settlement process under a contract, which generally occurs six to eight months after the end of a contract year, we settle any performance-based fees and reconcile health-care claims and clinical data. As of November 30, 2006, performance-based fees that have not yet been settled with our customers but that have been recognized as revenue in the current and prior years, including performance-based fees recognized as revenue under the MHS pilots, which will not be settled with the customer until the end of the pilots, totaled approximately $57.7 million. Of this amount, $20.5 million was based on calculations which include estimates such as medical claims incurred but not reported and/or the customer’s medical cost trend compared to a baseline year, while $37.2 million was based entirely on

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actual data received from our customers. Data reconciliation differences, for which we provide contractual allowances until we reach agreement with respect to identified issues, can arise between the customer and us due to customer data deficiencies, omissions, and/or data discrepancies.

Performance-related adjustments (including any amounts recorded as revenue that were ultimately refunded), changes in estimates, data reconciliation differences, or adjustments to incentive bonuses may cause us to recognize or reverse revenue in a current fiscal year that pertains to services provided during the prior fiscal year. During the three months ended November 30, 2006, we recognized a net decrease in revenue of $0.8 million that related to services provided prior to fiscal 2007.

Impairment of Intangible Assets and Goodwill

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we review goodwill for impairment on an annual basis or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable.

If we determine that the carrying value of goodwill is impaired based upon an impairment review, we calculate any impairment using a fair-value-based goodwill impairment test as required by SFAS No. 142. Fair value is the amount at which the asset could be bought or sold in a current transaction between two willing parties. We estimate fair value using a number of techniques, including quoted market prices or valuations by third parties, present value techniques based on estimates of cash flows, or multiples of earnings or revenues performance measures.

We amortize other identifiable intangible assets, such as acquired technologies and customer contracts, on the straight-line method over their estimated useful lives, except for trade names, which have an indefinite life and are not subject to amortization. We review intangible assets not subject to amortization on an annual basis or more frequently whenever events or circumstances indicate that the assets might be impaired. We assess the potential impairment of intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying values may not be recoverable.

If we determine that the carrying value of other identifiable intangible assets may not be recoverable, we calculate any impairment using an estimate of the asset’s fair value based on the projected net cash flows expected to result from that asset, including eventual disposition.

Future events could cause us to conclude that impairment indicators exist and that goodwill and/or other intangible assets associated with our acquired businesses are impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

Share-Based Compensation

In accordance with SFAS No. 123(R), we measure and recognize compensation expense for all share-based payment awards based on estimated fair values at the date of grant. Determining the fair value of share-based awards at the grant date requires judgment in developing assumptions, which involve a number of variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and expected stock option exercise behavior. In addition, we also use judgment in estimating the number of share-based awards that are expected to be forfeited. We contract with a third party to assist in developing the assumptions used in estimating the fair values of stock options.

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Results of Operations

The following table shows the components of the statements of operations for the three months ended November 30, 2006 and 2005 expressed as a percentage of revenues.

	Three Months Ended November 30,
	2006			2005
Revenues		100.0	%		100.0	%
Cost of services (exclusive of depreciation and amortization below)		66.3	%		70.5	%
Selling, general and administrative expenses		10.8	%		11.2	%
Depreciation and amortization		5.8	%		6.2	%
Operating income		17.2	%		12.1	%
Interest expense		0.3	%		0.3	%
Income before income taxes		16.9	%		11.8	%
Income tax expense		6.8	%		4.7	%
Net income		10.1	%		7.1	%

Revenues

Revenues for the three months ended November 30, 2006 increased 29.2% over revenues for the three months ended November 30, 2005, primarily due to the following:

• an increase in the number of self-insured employer actual lives under management from 666,000 at November 30, 2005 to 967,000 at November 30, 2006;

• existing health plan customers adding or expanding eight new programs since the beginning of the first quarter of fiscal 2006;

• the commencement of seven new health plan contracts since the beginning of the first quarter of fiscal 2006; and

• increased membership in our customers’ existing programs.

We anticipate that revenues for the remainder of fiscal 2007 will increase over fiscal 2006 primarily due to the expansion of existing contracts, increasing demand for our Health and Care Support services from self-insured employers who contract with our health plan customers or with Medco, anticipated new health plan contracts, increased revenues from the MHS pilots and the acquisition of Axia.

Cost of Services

Cost of services (excluding depreciation and amortization) as a percentage of revenues for the three months ended November 30, 2006 decreased to 66.3% compared to 70.5% for the same period in fiscal 2006, primarily due to the following:

• a decrease in the level of employee bonus provision during the three months ended November 30, 2006 compared to the three months ended November 30, 2005;

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• a decrease in telecommunications expense during the three months ended November 30, 2006 compared to the three months ended November 30, 2005 primarily due to the renegotiation of a telecommunications contract resulting in cost savings beginning in the second quarter of fiscal 2006; and

• improvement in our medical claims experience under our self-insured health insurance program during the three months ended November 30, 2006 compared to the three months ended November 30, 2005.

These decreases were somewhat offset by increases in cost of services as a percentage of revenues related to the following:

• increased professional consulting fees related to information technology strategy and initiatives during the three months ended November 30, 2006 compared to the three months ended November 30, 2005;

• increased volume in mailings of educational materials to participants due to timing of new contracts and an increase in domestic postage rates during the three months ended November 30, 2006 compared to the three months ended November 30, 2005;

• increased salaries and benefits during the three months ended November 30, 2006 compared to the three months ended November 30, 2005 primarily related to organizational design changes in our field support and operations structure; and

• increased costs and decreased revenues related to the MHS pilots during the three months ended November 30, 2006 compared to the three months ended November 30, 2005. Costs associated with the MHS pilots increased primarily due to 1) additional costs related to the timing of the pilot in Georgia in collaboration with CIGNA, which did not begin until the middle of the first quarter of fiscal 2006; 2) enhanced interventions to generate cost savings in the pilots, such as through the increased use of heart monitors; and 3) additional costs related to the refresh population, which we began serving on August 1, 2006. Revenues associated with the MHS pilots decreased due to a decline in the cumulative net savings in the intervention population compared to the control group.

We anticipate that cost of services for the remainder of fiscal 2007 will increase over fiscal 2006 primarily as a result of increases in operating staff required for expected increases in demand for our services, increases in indirect staff costs associated with the continuing development and implementation of our Health and Care Support services, increases in information technology and other support staff and costs, and the incremental cost of services attributable to Axia, including related operational integration expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenues decreased to 10.8% for the three months ended November 30, 2006 compared to 11.2% for the same period in fiscal 2006 primarily related to a decrease in the level of employee bonus provision during the three months ended November 30, 2006 compared to the three months ended November 30, 2005. This decrease was somewhat offset by increased salaries and benefits related to our marketing and sales strategy initiatives during the three months ended November 30, 2006 compared to the three months ended November 30, 2005.

We anticipate that selling, general and administrative expenses for the remainder of fiscal 2007 will increase over fiscal 2006 primarily due to anticipated investments in international initiatives, increases in selling and general administrative costs in support of our existing and anticipated new and expanded contracts, incremental selling, general and administrative costs attributable to Axia, and costs related to the integration of Axia.

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Depreciation and Amortization

Depreciation and amortization expense for the three months ended November 30, 2006 increased 20.4% compared to the same period in fiscal 2006 primarily due to increased depreciation expense associated with capital expenditures to enhance our information technology capabilities and expand our corporate office and calling capacity at existing care enhancement centers.

We anticipate that depreciation and amortization expense for the remainder of fiscal 2007 will increase over fiscal 2006 primarily as a result of 1) anticipated depreciation and amortization expense associated with the estimated identifiable intangible assets and depreciable assets expected to be recorded in connection with the Axia acquisition, and 2) additional capital expenditures associated with expected increases in demand for our services and growth and improvement in our information technology capabilities.

Interest Expense

We anticipate that interest expense for the remainder of fiscal 2007 will increase over fiscal 2006 primarily as a result of borrowings under the Third Amended Credit Agreement entered into on December 1, 2006.

Income Tax Expense

Our effective tax rate increased to 40.3% for the three months ended November 30, 2006 compared to 39.7% for the three months ended November 30, 2005, primarily as a result of costs of international initiatives and changes in our geographic mix of earnings, which impacts our average state income tax rate, and other factors. The differences between the statutory federal income tax rate of 35.0% and our effective tax rate are due primarily to the impact of state income taxes and certain non-deductible expenses for income tax purposes. We anticipate that our effective tax rate for the remainder of fiscal 2007 will increase over fiscal 2006 primarily as a result of an expected increase in costs related to international initiatives in fiscal 2007.

Liquidity and Capital Resources

Operating activities for the three months ended November 30, 2006 generated cash of $9.4 million compared to $4.5 million for the same period in fiscal 2006. The increase in operating cash flow of $4.9 million resulted primarily from 1) an increase in net income; 2) a decrease in cash collections on accounts receivable during the three months ended November 30, 2005 due to a delay in monthly payments from two large customers, which were received in early December 2005; and 3) an increase in accounts payable during the three months ended November 30, 2006 compared to the three months ended November 30, 2005 related to several large vendor invoices that were received in November 2006 and paid in early December 2006. These increases to cash were partially offset by a higher employee bonus payment during the three months ended November 30, 2006 compared to the three months ended November 30, 2005.

Investing activities during the three months ended November 30, 2006 used $4.7 million in cash which primarily consisted of investments in property and equipment associated with the addition of information technology hardware and software and expansions at existing care enhancement centers.

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Financing activities for the three months ended November 30, 2006 provided $2.5 million in cash primarily due to proceeds from the exercise of stock options and the related tax benefit.

As of November 30, 2006, there were letters of credit outstanding under the Second Amended Credit Agreement totaling $0.9 million primarily to secure our ability to pay claims under our workers compensation high-deductible policy.

As of November 30, 2006, we were in compliance with all of the covenant requirements of the Second Amended Credit Agreement, and we are currently in compliance with all of the covenant requirements of the Third Amended Credit Agreement, as described further below. As of November 30, 2006, our available line of credit totaled $249.1 million. In December 2006, we used approximately $108.0 million in cash and $350.0 million in borrowings under a $600.0 million credit facility, discussed below, to fund the Axia acquisition.

                 On December 1, 2006, we entered into the Third Amended Credit Agreement. The Third Amended Credit Agreement provides us with a $400.0 million revolving credit facility, including a swingline sub facility of $10.0 million and a $75.0 million sub facility for letters of credit, a $200.0 million term loan facility, and an uncommitted incremental accordion facility of $200.0 million.

Revolving advances under the Third Amended Credit Agreement generally bear interest, at our option, at 1) LIBOR plus a spread of 0.875% to 1.750% or 2) the greater of the federal funds rate plus 0.5%, or the prime rate, plus a spread of 0.000% to 0.250%. Term loan borrowings under the Third Amended Credit Agreement generally bear interest, at our option, at 1) LIBOR plus 1.750% or 2) the greater of the federal funds rate plus 0.5%, or the prime rate, plus 0.250%. The Third Amended Credit Agreement also provides for a fee ranging between 0.150% and 0.300% of unused commitments. The Third Amended Credit Agreement is secured by guarantees from most of the Company’s domestic subsidiaries and by security interests in substantially all of the Company’s and such subsidiaries’ assets.

We are required to repay outstanding revolving loans on the revolving commitment termination date, which is December 1, 2011. We are required to repay term loans in quarterly principal installments aggregating $0.5 million each, commencing on March 31, 2007, and the entire unpaid principal balance of the term loans is due and payable at maturity on December 1, 2013.

The Third Amended Credit Agreement replaced the Second Amended Credit Agreement, which provided us with a $250.0 million revolving credit facility, including a swingline sub facility of $10.0 million and a $75.0 million sub facility for letters of credit, together with an uncommitted incremental accordion facility of $50.0 million. The Second Amended Credit Agreement contained various financial covenants, which required us to maintain, as defined, ratios or levels of (i) total funded debt to EBITDA, (ii) fixed charge coverage, and (iii) net worth. The Third Amended Credit Agreement contains similar financial covenants. Both agreements restrict the payment of dividends and limit the amount of repurchases of the Company’s common stock. On December 21, 2006, we entered into an amortizing fixed interest rate swap agreement for the management of interest rate exposure. By entering into this interest rate swap agreement we effectively converted $230.0 million of floating rate debt to a fixed obligation with an interest rate of 4.995%. The principal value of the swap arrangement amortizes over a 39-month period and terminates on March 31, 2010. We currently believe that we will be able to meet the hedge accounting criteria under SFAS No. 133 in accounting for the interest rate swap agreement.

We believe that cash flow from operating activities, our available cash, and our expected available credit under committed bank debt will continue to enable us to meet our contractual obligations and to fund the current level of growth in our operations for the foreseeable future. However, if

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expanding our operations requires significant additional financing resources, such as capital expenditures for technology improvements, additional care enhancement centers and/or letters of credit or other forms of financial assurance to guarantee our performance under the terms of new contracts, or if we are required to refund performance-based fees pursuant to contract terms, we may need to raise additional capital by expanding our existing credit facility and/or issuing debt or equity. If we face a limited ability to arrange such financing, it may restrict our ability to expand our operations.

If contract development accelerates or acquisition opportunities arise that would expand our operations, we may need to issue additional debt or equity to provide the funding for these increased growth opportunities. We may also issue equity in connection with future acquisitions or strategic alliances. We cannot assure you that we would be able to issue additional debt or equity on terms that would be acceptable to us.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risk related to interest rate changes, primarily as a result of the Second Amended Credit Agreement, which bears interest based on floating rates. Borrowings under the Second Amended Credit Agreement generally bear interest, at our option, at LIBOR plus a spread of 0.875% to 1.5%, which is dependent on the ratio of total funded debt to EBITDA, or at the prime rate. Because there was no variable rate debt outstanding during the three months ended November 30, 2006, a one-point interest rate change would not have caused interest expense to fluctuate for the three months ended November 30, 2006.

As of November 30, 2006, as a result of our investment in international initiatives, we are also exposed to foreign currency exchange rate risks. Because a significant portion of these risks is economically hedged with currency options and forwards contracts, a 10% change in foreign currency exchange rates would not have had a material impact on our results of operations or financial position for the three months ended November 30, 2006. We do not execute transactions or hold derivative financial instruments for trading purposes.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of November 30, 2006. Based on that evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures effectively and timely provide them with material information relating to the Company and its consolidated subsidiaries required to be disclosed in the reports the Company files or submits under the Exchange Act.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting during the quarter ended November 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II

Item 1.    Legal Proceedings.

In June 1994, a former employee whom we dismissed in February 1994 filed a “whistle blower” action on behalf of the United States government. Subsequent to its review of this case, the federal government determined not to intervene in the litigation. The employee sued Healthways, Inc. and our wholly-owned subsidiary, American Healthways Services, Inc. (“AHSI”), as well as certain named and unnamed medical directors and one named client hospital, West Paces Medical Center (“WPMC”), and other unnamed client hospitals.

Healthways, Inc. has since been dismissed as a defendant; however, the case is still pending against AHSI before the United States District Court for the District of Columbia. In addition, WPMC has settled claims filed against it as part of a larger settlement agreement that WPMC’s parent organization, HCA Inc., reached with the United States government.

The complaint alleges that AHSI, the client hospitals and the medical directors violated the federal False Claims Act by entering into certain arrangements that allegedly violated the federal anti-kickback statute and provisions of the Social Security Act prohibiting physician self-referrals. Although no specific monetary damage has been claimed, the plaintiff, on behalf of the federal government, seeks treble damages plus civil penalties and attorneys’ fees. The plaintiff also has requested an award of 30% of any judgment plus expenses. In February 2006, WPMC filed an arbitration claim seeking indemnification from us for certain costs and expenses incurred by it in connection with the case.  

In the action by the former employee, discovery is substantially complete but no trial date has been set. The parties have had initial discussions regarding their respective positions in the case; however, no resolution of this case has been reached or can be assured prior to the case proceeding to trial. In the action by WPMC, initial arbitration proceedings were commenced during the third quarter of fiscal 2006.

We believe that we have conducted our operations in full compliance with applicable statutory requirements and that we have meritorious defenses to the claims made in the case and the related arbitration proceeding, and  intend to contest the claims vigorously. Nevertheless, it is possible that resolution of these legal matters could have a material adverse effect on our consolidated results of operations in a particular financial reporting period. We believe that we will continue to incur legal expenses associated with the defense of these matters which may be material to our consolidated results of operations in a particular financial reporting period. However, we believe that any resolution of this case and all related matters will not have a material effect on our liquidity or financial condition.

We are also subject to other claims and suits that arise from time to time in the ordinary course of our business. While management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact on our financial position, our results of operations, or our cash flows, these matters are subject to inherent uncertainties, and management’s view of these matters may change in the future.

Item 1A. Risk Factors.

Not Applicable.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

                 Not Applicable.

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Item 3.     Defaults Upon Senior Securities.

                 Not Applicable.

Item 4.     Submission of Matters to a Vote of Security Holders.

                 Not Applicable.

Item 5.     Other Information.

Not Applicable.   

Item 6.     Exhibits.

(a) Exhibits

10.1	Third Amended and Restated Revolving Credit and Term Loan Agreement between the Company and SunTrust Bank as Administrative Agent, U.S. Bank National Association and Regions Bank as Co-Documentation Agents, and JPMorgan Chase Bank, N.A., and Fifth Third Bank, N.A. as Co-Syndication Agents dated December 1, 2006
10.2	Consulting Agreement between the Company and Rincon Advisors, LLC dated October 11, 2006
10.3	Subscription Agreement between the Company, L. Ben Lytle, and the L. Ben Lytle Amended and Restated Revocable Living Trust, U/A dated October 11, 2006
11	Earnings Per Share Reconciliation
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

                Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

			Healthways, Inc.
			(Registrant)
Date	January 9, 2007	By	/s/ Mary A. Chaput
			Mary A. Chaput
			Executive Vice President
			Chief Financial Officer
			(Principal Financial Officer)
Date	January 9, 2007	By	/s/ Alfred Lumsdaine
			Alfred Lumsdaine
			Senior Vice President and
			Controller
			(Principal Accounting Officer)

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EX-10

Exhibit 10.1

EXECUTION COPY

THIRD AMENDED AND RESTATED

REVOLVING CREDIT AND TERM LOAN AGREEMENT

Dated as of December 1, 2006

Among

HEALTHWAYS, INC.

as Borrower,

THE LENDERS FROM TIME TO TIME PARTY HERETO,

JPMORGAN CHASE BANK, N.A. and

FIFTH THIRD BANK, N.A.

as Co-Syndication Agents,

U.S. BANK NATIONAL ASSOCIATION

REGIONS BANK

as Co-Documentation Agents

and

SUNTRUST BANK

as Administrative Agent

SUNTRUST ROBINSON HUMPHREY

a Division of SunTrust Capital Markets, Inc.

as Joint Lead Arranger and Sole Bookrunner

J.P. MORGAN SECURITIES, INC.,

as Joint Lead Arranger

TABLE OF CONTENTS
				Page
ARTICLE I		DEFINITIONS; CONSTRUCTION		1
	SECTION 1.1		DEFINITIONS	1
	SECTION 1.2		CLASSIFICATIONS OF LOANS AND BORROWINGS	22
	SECTION 1.3		ACCOUNTING TERMS AND DETERMINATION	22
	SECTION 1.4		TERMS GENERALLY	22
ARTICLE II		AMOUNT AND TERMS OF THE COMMITMENTS		23
	SECTION 2.1		GENERAL DESCRIPTION OF FACILITIES	23
	SECTION 2.2		REVOLVING LOANS	23
	SECTION 2.3		PROCEDURE FOR REVOLVING BORROWINGS	23
	SECTION 2.4		SWINGLINE COMMITMENT	24
	SECTION 2.5		PROCEDURE FOR SWINGLINE BORROWING; ETC	24
	SECTION 2.6		TERM LOAN COMMITMENTS	26
	SECTION 2.7		INTENTIONALLY OMITTED	26
	SECTION 2.8		FUNDING OF BORROWINGS	26
	SECTION 2.9		INTEREST ELECTIONS	27
	SECTION 2.10		OPTIONAL REDUCTION AND TERMINATION OF COMMITMENTS	28
	SECTION 2.11		REPAYMENT OF LOANS	28
	SECTION 2.12		EVIDENCE OF INDEBTEDNESS	28
	SECTION 2.13		OPTIONAL AND MANDATORY PREPAYMENTS	29
	SECTION 2.14		INTEREST ON LOANS	31
	SECTION 2.15		FEES	32
	SECTION 2.16		COMPUTATION OF INTEREST AND FEES	33
	SECTION 2.17		INABILITY TO DETERMINE INTEREST RATES	33
	SECTION 2.18		ILLEGALITY	34
	SECTION 2.19		INCREASED COSTS	34
	SECTION 2.20		FUNDING INDEMNITY	35
	SECTION 2.21		TAXES	36
	SECTION 2.22		PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS	37
	SECTION 2.23		MITIGATION OF OBLIGATIONS	39
	SECTION 2.24		LETTERS OF CREDIT	39
	SECTION 2.25		INCREASE OF COMMITMENTS; ADDITIONAL LENDERS	43
	SECTION 2.26		REPLACEMENT OF A LENDER	45
ARTICLE III		CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT		46
	SECTION 3.1		CONDITIONS TO EFFECTIVENESS	46
	SECTION 3.2		EACH CREDIT EVENT	48
	SECTION 3.3		DELIVERY OF DOCUMENTS	48
ARTICLE IV		REPRESENTATIONS AND WARRANTIES		48
	SECTION 4.1		EXISTENCE; POWER	48
	SECTION 4.2		ORGANIZATIONAL POWER; AUTHORIZATION	49
	SECTION 4.3		GOVERNMENTAL APPROVALS; NO CONFLICTS	49
	SECTION 4.4		FINANCIAL STATEMENTS	49
	SECTION 4.5		LITIGATION AND ENVIRONMENTAL MATTERS	50
	SECTION 4.6		COMPLIANCE WITH LAWS AND AGREEMENTS	50
	SECTION 4.7		INVESTMENT COMPANY ACT, ETC	50
	SECTION 4.8		TAXES	50
	SECTION 4.9		MARGIN REGULATIONS	50
	SECTION 4.10		ERISA	51
	SECTION 4.11		OWNERSHIP OF PROPERTY	51

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	SECTION 4.12		DISCLOSURE	51
	SECTION 4.13		LABOR RELATIONS	51
	SECTION 4.14		SUBSIDIARIES	52
	SECTION 4.15		AXIA ACQUISITION	52
ARTICLE V		AFFIRMATIVE COVENANTS		52
	SECTION 5.1		FINANCIAL STATEMENTS AND OTHER INFORMATION	52
	SECTION 5.2		NOTICES OF MATERIAL EVENTS	53
	SECTION 5.3		EXISTENCE; CONDUCT OF BUSINESS	54
	SECTION 5.4		COMPLIANCE WITH LAWS, ETC	54
	SECTION 5.5		PAYMENT OF OBLIGATIONS	54
	SECTION 5.6		BOOKS AND RECORDS	54
	SECTION 5.7		VISITATION, INSPECTION, ETC	54
	SECTION 5.8		MAINTENANCE OF PROPERTIES; INSURANCE	55
	SECTION 5.9		USE OF PROCEEDS AND LETTERS OF CREDIT	55
	SECTION 5.10		ADDITIONAL SUBSIDIARIES	55
	SECTION 5.11		ADDITIONAL ASSETS	57
	SECTION 5.12		POST-CLOSING COVENANT	57
FINANCIAL COVENANTS				57
	SECTION 6.1		RATIO OF CONSOLIDATED TOTAL FUNDED DEBT TO CONSOLIDATED EBITDA	58
	SECTION 6.2		FIXED CHARGE COVERAGE RATIO	58
	SECTION 6.3		CONSOLIDATED NET WORTH	58
ARTICLE VII		NEGATIVE COVENANTS		59
	SECTION 7.1		INDEBTEDNESS	59
	SECTION 7.2		NEGATIVE PLEDGE	60
	SECTION 7.3		FUNDAMENTAL CHANGES	61
	SECTION 7.4		INVESTMENTS, LOANS, ETC	61
	SECTION 7.5		RESTRICTED PAYMENTS	62
	SECTION 7.6		SALE OF ASSETS	63
	SECTION 7.7		TRANSACTIONS WITH AFFILIATES	63
	SECTION 7.8		RESTRICTIVE AGREEMENTS	63
	SECTION 7.9		SALE AND LEASEBACK TRANSACTIONS	64
	SECTION 7.10		HEDGING AGREEMENTS	64
	SECTION 7.11		STATUS OF INCORPORATION AND FORMATION	64
	SECTION 7.12		ACCOUNTING CHANGES	64
	SECTION 7.13		PERMITTED SUBORDINATED DEBT	64
ARTICLE VIII		EVENTS OF DEFAULT		65
	SECTION 8.1		EVENTS OF DEFAULT	65
	SECTION 8.2.		APPLICATION OF PROCEEDS FROM COLLATERAL	68
ARTICLE IX		THE ADMINISTRATIVE AGENT		69
	SECTION 9.1		APPOINTMENT OF ADMINISTRATIVE AGENT	69
	SECTION 9.2		NATURE OF DUTIES OF ADMINISTRATIVE AGENT	69
	SECTION 9.3		LACK OF RELIANCE ON THE ADMINISTRATIVE AGENT	70
	SECTION 9.4		CERTAIN RIGHTS OF THE ADMINISTRATIVE AGENT	70
	SECTION 9.5		RELIANCE BY ADMINISTRATIVE AGENT	70
	SECTION 9.6		THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY	70
	SECTION 9.7		SUCCESSOR ADMINISTRATIVE AGENT	71
	SECTION 9.8		AUTHORIZATION TO EXECUTE OTHER LOAN DOCUMENTS	71
	SECTION 9.9		DOCUMENTATION AGENT; SYNDICATION AGENT	71
ARTICLE X		MISCELLANEOUS		72
	SECTION 10.1		NOTICES	72

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SECTION 10.2	WAIVER; AMENDMENTS	74
SECTION 10.3	EXPENSES; INDEMNIFICATION	75
SECTION 10.4	SUCCESSORS AND ASSIGNS	77
SECTION 10.5	GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS	80
SECTION 10.6	WAIVER OF JURY TRIAL	81
SECTION 10.7	RIGHT OF SETOFF	81
SECTION 10.8	COUNTERPARTS; INTEGRATION	81
SECTION 10.9	SURVIVAL	82
SECTION 10.10	SEVERABILITY	82
SECTION 10.11	CONFIDENTIALITY	82
SECTION 10.12	INTEREST AND LOAN CHARGES NOT TO EXCEED MAXIMUM AMOUNTS ALLOWED BY LAW	83
SECTION 10.13	U.S. PATRIOT ACT NOTIFICATION	83
SECTION 10.14	PRIOR FACILITY	83
SECTION 10.15	LOCATION OF CLOSING	83

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Schedules
Schedule I	–	Applicable Margin and Applicable Percentage
Schedule II	–	Commitment Amounts
Schedule 2.24	–	Existing Letters of Credit
Schedule 4.5(a)	–	Litigation and Environmental Matters
Schedule 4.14	–	Subsidiaries
Schedule 7.1	–	Indebtedness
Schedule 7.2	–	Negative Pledge
Schedule 7.4	–	Investments, Loans, Etc.

Exhibits
Exhibit A	–	Assignment and Acceptance Agreement
Exhibit 2.3	–	Form of Notice of Revolving Borrowing

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THIRD AMENDED AND RESTATED 
REVOLVING CREDIT AND TERM LOAN AGREEMENT

THIS THIRD AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT (this “Agreement”) is made and entered into as of December 1, 2006, by and among HEALTHWAYS, INC., formerly American Healthways, Inc., a Delaware corporation (the “Borrower”), the several banks and financial institutions from time to time party hereto (the “Lenders”), and SUNTRUST BANK, in its capacity as administrative agent for the Lenders (the “Administrative Agent”), as issuing bank (the “Issuing Bank”) and as swingline lender (the “Swingline Lender”).

W I T N E S S E T H:

WHEREAS,  the Borrower has requested that the Lenders establish in favor of the Borrower (x) a $400,000,000 revolving credit facility with a swingline facility of $10,000,000 and a letter of credit sub-facility for an aggregate stated amount equal to $75,000,000, and (y) a $200,000,000 term loan B facility;

WHEREAS, the Borrower, SunTrust Bank, as Administrative Agent, and the Lenders as defined therein (the “Prior Lenders”) previously entered into that certain Second Amended and Restated Revolving Credit Loan Agreement dated September 19, 2005 (the “Prior Facility”) which established a $250,000,000 revolving credit facility with a swingline facility of $10,000,000 and a letter of credit sub-facility for an aggregate stated amount equal to $75,000,000;

WHEREAS, subject to the terms and conditions of this Agreement, the Borrower, the Administrative Agent, and the Lenders severally, to the extent of their respective Commitments as defined herein, are willing to amend and restate the Prior Facility as set forth herein, and establish the requested revolving credit facility, swingline facility, letter of credit facility and term loan B facility as a replacement of the Prior Facility;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrower, the Lenders and the Administrative Agent agree that the Prior Facility is amended, restated and replaced in its entirety as follows:

ARTICLE I

DEFINITIONS; CONSTRUCTION

Section 1.1        Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined):

“Acquisition” shall mean (a) any Investment by the Borrower or any of its Subsidiaries in any other Person pursuant to which such Person shall become a Subsidiary of the Borrower or any of its Subsidiaries or shall be merged with the Borrower or any of its Subsidiaries or (b) any acquisition by the Borrower or any of its Subsidiaries of the assets of any Person (other than a

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Subsidiary of the Borrower) that constitute all or substantially all of the assets of such Person or comprise a business unit of such Person. With respect to a determination of the amount of an Acquisition, such amount shall include all consideration (including any deferred payments) set forth in the applicable agreements governing such Acquisition as well as the assumption of any Indebtedness in connection therewith.

“Additional Commitment Amount”  shall have the meaning given to such term in Section 2.25.

“Additional Lender” shall have the meaning given to such term in Section 2.25.

“Adjusted LIBO Rate” shall mean, with respect to each Interest Period for a Eurodollar Borrowing, the rate per annum obtained by dividing (i) LIBOR for such Interest Period by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage, to the extent Eurodollar reserves are maintained.

“Administrative Agent” shall have the meaning assigned to such term in the opening paragraph hereof.

“Administrative Questionnaire” shall mean, with respect to each Lender, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent duly completed by such Lender.

“Affected Lender” shall have the meaning assigned to such term in Section 5.26.

“Affiliate” shall mean, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. For purposes of this definition “Control” shall mean the power, directly or indirectly, either to (i) vote 10% or more of securities having ordinary voting power for the election of directors (or persons performing similar functions) of a Person or (ii) direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms “Controlling”, “Controlled by”, and “under common Control with” have meanings correlative thereto.

“Aggregate Revolving Commitments” shall mean the sum of the Revolving Commitments of all Lenders at any time outstanding. On the Closing Date, the Aggregate Revolving Commitments equal $400,000,000.

“Applicable Lending Office” shall mean, for each Lender and for each Type of Loan, the “Lending Office” of such Lender (or an Affiliate of such Lender) designated for such Type of Loan in the Administrative Questionnaire submitted by such Lender or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained.

“Applicable Margin” shall mean (x) with respect to all Term Loans outstanding on any date, a Base Rate Margin of 0.25% per annum and a Eurodollar Rate Margin of 1.75% per annum and (y) with respect to all Revolving Loans outstanding on any date, the Base Rate

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Margin or the Eurodollar Margin, as applicable, equal to a percentage per annum determined by reference to the applicable ratio of Consolidated Total Funded Debt to Consolidated EBITDA in effect on such date (for the four fiscal quarter period then most recently ended) as set forth on Schedule I attached hereto; provided, that a change in the Eurodollar Margin or Base Rate Margin for Revolving Loans resulting from a change in the ratio of Consolidated Total Funded Debt to Consolidated EBITDA shall be effective on the second Business Day after which the Borrower delivers the financial statements required by Section 5.1(a) or (b), as applicable, and the compliance certificate required by Section 5.1(c); provided further, that if at any time the Borrower shall have failed to deliver such financial statements and such certificate, the Eurodollar Margin and Base Rate Margin for Revolving Loans shall be at Level VI until such time as such financial statements and certificate are delivered, at which time the Eurodollar Margin and Base Rate Margin for Revolving Loans shall be determined as provided above. Notwithstanding the foregoing, the Eurodollar Margin and Base Rate Margin for Revolving Loans from the Closing Date until the first financial statement and compliance certificate is delivered shall be at Level IV.

“Applicable Percentage” shall mean, with respect to the commitment fee or the letter of credit fee, as the case may be, as of any date, the percentage per annum determined by reference to the applicable ratio of Consolidated Total Funded Debt to Consolidated EBITDA in effect on such date (for the four fiscal quarter period then most recently ended) as set forth on Schedule I attached hereto; provided, that a change in the Applicable Percentage resulting from a change in the ratio of Consolidated Total Funded Debt to Consolidated EBITDA shall be effective on the second Business Day after which the Borrower delivers the financial statements required by Section 5.1(a) or (b), as applicable, and the compliance certificate required by Section 5.1 (c); provided, further, that if at any time the Borrower shall have failed to deliver such financial statements and such certificate, the Applicable Percentage shall be at Level VI until such time as such financial statements and certificate are delivered, at which time the Applicable Percentage shall be determined as provided above. Notwithstanding the foregoing, the Applicable Percentage for both the commitment fee and the letter of credit fee from the Closing Date until the first financial statement and compliance certificate is delivered, shall be at Level IV.

“Approved Fund” shall mean any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender.

“Asset Sale” shall mean any Disposition or series of related Dispositions of any asset(s) of the Borrower or any of its Subsidiaries, excluding any such Disposition permitted by Section 7.6.

“Assignment and Acceptance” shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.4(b) herein) and accepted by the Administrative Agent, in the form of Exhibit A attached hereto or any other form approved by the Administrative Agent.

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“Assignment and Security Agreement”  shall mean the Amended and Restated Assignment and Security Agreement, dated as of the Closing Date, executed by the Borrower and its Domestic Subsidiaries in favor of the Administrative Agent for the benefit of the Lenders in accordance with the terms hereof.

“Availability Period” shall mean the period from the Closing Date to the Revolving Commitment Termination Date.

“Axia”  shall mean Axia Health Management, Inc., a Delaware corporation.

“Axia Acquisition”  shall mean the transaction pursuant to which the Borrower shall acquire 100% of the issued and outstanding capital stock of Axia from Axia Health Management, LLC, a Delaware limited liability company, pursuant to and as provided in the Axia Acquisition Agreement.

“Axia Acquisition Documents”  shall mean the Axia Acquisition Agreement and any instrument, document or agreement executed pursuant thereto or in connection therewith.

“Axia Acquisition Agreement”  shall mean the Stock Purchase Agreement dated as of October 11, 2006, by and among the Borrower, Axia and Axia Health Management, LLC, a Delaware limited liability company.

“Base Rate” when used in reference to any Loan or Borrowing shall mean the higher of (i) the per annum rate which the Administrative Agent publicly announces from time to time to be its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%), and refers to whether such Loan or Loans comprising such Borrowing bears interest at a rate determined by reference to the Base Rate. The Administrative Agent’s prime lending rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers. The Administrative Agent may make commercial loans or other loans at rates of interest at, above or below the Administrative Agent’s prime lending rate. Each change in the Administrative Agent’s prime lending rate shall be effective from and including the date such change is publicly announced as being effective.

“Base Rate Margin” shall mean the Applicable Margin for Base Rate Loans.

“Borrower” shall have the meaning in the introductory paragraph hereof.

“Borrowing” shall mean a borrowing consisting of (i) Loans of the same Class and Type, made, converted or continued on the same date and in case of Eurodollar Loans, as to which a single Interest Period is in effect, or (ii) a Swingline Loan.

“Business Day” shall mean (i) any day other than a Saturday, Sunday or other day on which commercial banks in Atlanta, Georgia or New York, New York are authorized or required by law to close and (ii) if such day relates to a Borrowing of, a payment or prepayment of principal or interest on, a conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice with respect to any of the foregoing, any day on which dealings in Dollars are carried on in the London interbank market.

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“Capital Expenditures” shall mean for any period, without duplication, (a) the additions to property, plant and equipment and other capital expenditures of the Borrower and its Subsidiaries that are (or would be) set forth on a consolidated statement of cash flows of the Borrower for such period prepared in accordance with GAAP and (b) Capital Lease Obligations incurred by the Borrower and its Subsidiaries during such period; provided, however, that “Capital Expenditures” shall not include any amounts paid to consummate an acquisition permitted hereby.

“Capital Lease Obligations” of any Person shall mean all obligations of such Person to pay rent or other amounts under any lease (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

“Change in Control” shall mean the occurrence of one or more of the following events: (a) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Borrower to any Person or “group” (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder in effect on the date hereof), (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or “group” (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of 35% or more of the outstanding shares of the voting stock of the Borrower; or (c) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the current board of directors or (ii) appointed by directors so nominated.

“Change in Law” shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by any Lender (or its Applicable Lending Office) or the Issuing Bank (or for purposes of Section 2.19(b), by such Lender’s or the Issuing Bank’s holding company, if applicable) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Swingline Loans or Term Loans and when used in reference to any Commitment, refers to whether such Commitment is a Revolving Commitment, a Swingline Commitment or a Term Loan Commitment.

“Closing Date” shall mean the date on which the conditions precedent set forth in Section 3.1 and Section 3.2 have been satisfied or waived in accordance with Section 10.2.

“Code” shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time.

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“Collateral”  shall mean all tangible and intangible property, real and personal, of any Loan Party that is the subject of a Lien granted, or purported to be granted, pursuant to a Loan Document to the Administrative Agent for the benefit of the Lenders to secure the whole or any part of the Obligations or any Guarantee thereof.

“Commitment” shall mean a Revolving Commitment, a Swingline Commitment or a Term Loan Commitment or any combination thereof (as the context shall permit or require).

“Consolidated EBITDA” shall mean, for the Borrower and its Subsidiaries for any period, an amount equal to the sum of (a) Consolidated Net Income for such period plus (b) to the extent deducted in determining Consolidated Net Income for such period, (i) Consolidated Interest Expense, (ii) income tax expense, (iii) depreciation and amortization and (iv) all other non-cash charges (including non-cash expenses related to equity based compensation, but excluding any such other non-cash charge to the extent that it represents an accrual of or reserve for future cash payments), determined on a consolidated basis in accordance with GAAP in each case for such period. Except for purposes of calculating Excess Cash Flow, Consolidated EBITDA shall include the pro forma EBITDA of any Acquisition annualized from the date of acquisition for a period not to exceed four fiscal quarters so long as the calculation thereof is done in a manner reasonably calculated to be consistent with GAAP and such calculation is detailed in the supporting calculations to a covenant compliance certificate as detailed and measured to the Administrative Agent’s reasonable satisfaction.

“Consolidated Fixed Charges” shall mean, for the Borrower and its Subsidiaries for any period, the sum (without duplication) of (a) Consolidated Interest Expense paid in cash for such period, (b) scheduled principal payments made on Consolidated Total Debt during such period and (c) Restricted Payments paid during such period.

“Consolidated Interest Expense” shall mean, for the Borrower and its Subsidiaries for any period determined on a consolidated basis in accordance with GAAP, the sum of (i) total interest expense, including without limitation the interest component of any payments in respect of Capital Lease Obligations capitalized or expensed during such period (whether or not actually paid during such period) plus (ii) the net amount payable (or minus the net amount receivable) under Hedging Agreements during such period (whether or not actually paid or received during such period).

“Consolidated Net Income” shall mean, for any period, the net income (or loss) of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, but excluding therefrom (to the extent otherwise included therein) (i) any extraordinary gains or losses, (ii) any gains attributable to write-ups of assets and (iii) any equity interest of the Borrower or any Subsidiary of the Borrower in the unremitted earnings of any Person that is not a Subsidiary, (iv) any income attributable to any minority interest in a Subsidiary held by a Person other than the Borrower or a Subsidiary and (v) any income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or any Subsidiary or the date that such Person’s assets are acquired by the Borrower or any Subsidiary.

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“Consolidated Net Worth” shall mean, as of any date, (i) the total assets of the Borrower and its Subsidiaries that would be reflected on the Borrower’s consolidated balance sheet as of such date prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries, minus (ii) the sum of (x) the total liabilities of the Borrower and its Subsidiaries that would be reflected on the Borrower’s consolidated balance sheet as of such date prepared in accordance with GAAP and (y) the amount of any write-up in the book value of any assets resulting from a revaluation thereof or any write-up in excess of the cost of acquired assets reflected on the consolidated balance sheet of the Borrower as of such date prepared in accordance with GAAP, however, the purchase price for goodwill in connection with an Acquisition shall not be deemed a write-up in excess of costs under this clause (y).

“Consolidated Total Debt” shall mean, as of any date of determination, all Indebtedness of the Borrower and its Subsidiaries that would be reflected on a consolidated balance sheet of the Borrower prepared in accordance with GAAP as of such date.

“Consolidated Total Funded Debt” shall mean at any time, without duplication, all then currently outstanding obligations, liabilities and indebtedness of Borrower and its Subsidiaries on a consolidated basis of the types described in the definition of Indebtedness herein (except subsections (vi), (vii) and (xi) of such definition but including without limitation all Loans and Letters of Credit).

“Default” shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“Default Interest” shall have the meaning set forth in Section 2.14(c).

“Disposition” shall mean any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition of property, and the terms “Dispose” and “Disposed of” shall have correlative meanings.

“Dollar(s)” and the sign “$” shall mean lawful money of the United States of America.

“Domestic Subsidiary” shall mean any Subsidiary that is organized under the laws of the United States of America, any state thereof or the District of Columbia.

“Environmental Laws” shall mean all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters.

“Environmental Liability” shall mean any liability, contingent or otherwise (including any liability for damages, costs of environmental investigation and remediation, costs of administrative oversight, fines, natural resource damages, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) any actual or alleged violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) any actual or alleged exposure to

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any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute.

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated), which, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for the purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” shall mean (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator appointed by the PBGC of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“Eurodollar” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted LIBO Rate.

“Eurodollar Rate Margin” shall mean the Applicable Margin for Eurodollar Loans.

“Eurodollar Reserve Percentage” shall mean the aggregate of the maximum reserve percentages (including, without limitation, any emergency, supplemental, special or other marginal reserves) expressed as a decimal (rounded upwards to the next 1/100^th of 1%) in effect on any day to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate pursuant to regulations issued by the Board of Governors of the Federal Reserve System (or any Governmental Authority succeeding to any of its principal functions) with respect to eurocurrency funding (currently referred to as “eurocurrency liabilities” under Regulation D). Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D. The Eurodollar Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in any such reserve percentage.

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“Event of Default” shall have the meaning provided in Article VIII.

“Excess Cash Flow” shall mean, for any fiscal year of Borrower, without duplication, (a) Consolidated EBITDA minus (b) the sum of (i) Consolidated Interest Expense paid in cash, (ii) principal payments made in respect of Consolidated Total Funded Debt (including voluntary and mandatory prepayments of Consolidated Total Funded Debt) but excluding principal payments in respect of any revolving credit indebtedness except to the extent there is a corresponding reduction in the commitment(s) to make future advances, (iii) income tax expense paid in cash, (iv) Capital Expenditures paid in cash and (v) Restricted Payments paid in cash to the extent permitted under Section 7.5, plus  (c) as applicable, extraordinary cash gains, in each case measured for such fiscal year for the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.

“Excluded Taxes” shall mean with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income, excise or franchise taxes imposed on (or measured by) its net income or assets by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its Applicable Lending Office is located, or by any other jurisdiction, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located, and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.26), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender’s failure to comply with Section 2.21(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.21(a).

“Existing Letters of Credit”  shall mean collectively those outstanding letters of credit issued by SunTrust Bank for the account of Borrower or its Subsidiaries under the Prior Facility as set forth in Schedule 2.24. Such letters of credit shall be deemed issued under Section 2.24 as of the Closing Date.

“Federal Funds Rate” shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100^th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent.

“Fixed Charge Coverage Ratio” shall mean, for any period of four consecutive fiscal quarters of the Borrower, the ratio of (a) Consolidated EBITDA for such period less the actual amount paid by the Borrower and its Subsidiaries in cash during such period on account of Capital Expenditures and income taxes to (b) Consolidated Fixed Charges for such period.

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“Foreign Lender” shall mean any Lender that is organized under the laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia.

“Foreign Subsidiary” shall mean any Subsidiary that is organized under the laws of a jurisdiction other than the United States of America, any state thereof or the District of Columbia.

“GAAP” shall mean generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3.

“Governmental Authority” shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guarantee” of or by any Person (the “guarantor”) shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly and including any obligation, direct or indirect, of the guarantor (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued in support of such Indebtedness or obligation; provided, that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which Guarantee is made or, if not so stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. The term “Guarantee” used as a verb has a corresponding meaning.

“Hazardous Materials” shall mean all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Hedging Agreements” shall mean (a) an agreement (including terms and conditions incorporated by reference therein) which is a rate swap agreement, basis swap, forward rate agreement, commodity swap, commodity option, equity or equity index swap, bond option, interest rate option, foreign exchange agreement, rate cap agreement, rate floor agreement, rate collar agreement, currency swap agreement, cross-currency rate swap agreement, currency

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option or any other similar agreement (including any option to enter into any of the foregoing); (b) any combination of the foregoing; or (c) a master agreement for any of the foregoing together with all supplements.

“Hedge/Cash Management Exposure” shall mean all amounts owing by the Borrower to any Lender or an Affiliate of a Lender pursuant to or in connection with (i) any Hedging Agreement entered into in connection with interest rate risks with respect to this Agreement or otherwise and (ii) any cash management or treasury agreements with a Lender or an Affiliate of a Lender, in each case if and only for so long as all security therefor also secures all amounts owed under the Loan Documents.

“Indebtedness” of any Person shall mean, without duplication (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business; provided that for purposes of Section 8.1(f), trade payables overdue by more than 120 days shall be included in this definition except to the extent that any of such trade payables are being disputed in good faith and by appropriate measures), (iv) all obligations of such Person under any conditional sale or other title retention agreement(s) relating to property acquired by such Person, (v) all Capital Lease Obligations of such Person, (vi) all obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) all Guarantees of such Person of the type of Indebtedness described in clauses (i) through (vi) above and (xi) below, (viii) all Indebtedness of a third party secured by any Lien on property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (ix) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any common stock of such Person, (x) Off-Balance Sheet Liabilities of such Person, and (xi) obligations under any Hedging Agreements. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, except to the extent that applicable law or the terms of such Indebtedness provide that such Person is not liable therefor.

“Indemnified Taxes” shall mean Taxes other than Excluded Taxes.

“Information Memorandum” shall mean the Confidential Information Memorandum dated November, 2006 relating to the Borrower and the transactions contemplated by this Agreement and the other Loan Documents.

“Interest Period” shall mean with respect to any Eurodollar Borrowing, a period of one, two, three or six months, as the Borrower may request (and the Swingline Lender may agree in accordance with Section 2.5 for a Swingline Loan); provided, that:

(i)            the initial Interest Period for such Borrowing shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of another Type) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day following the day on which the next preceding Interest Period expires;

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(ii)           if any Interest Period would otherwise end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless, in the case of a Eurodollar Borrowing, such Business Day falls in another calendar month, in which case such Interest Period would end on the next preceding Business Day;

(iii)          any Interest Period in respect of a Eurodollar Borrowing which begins on the last Business Day of a calendar month or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such calendar month; and

(iv)          each principal installment of the Term Loans shall have an Interest Period ending on or before the corresponding installment payment date and the remaining principal balance (if any) of the Term Loans shall have an Interest Period determined as set forth above; and

(v)           no Interest Period may extend beyond the Revolving Commitment Termination Date unless on the Revolving Commitment Termination Date the aggregate outstanding principal amount of Term Loans is equal to or greater than the aggregate principal amount of Eurodollar Loans with Interest Periods expiring after such date, and no Interest Period may extend beyond the Maturity Date.

“Investments” has the meaning assigned to such term in Section 7.4.

“Issuing Bank” shall mean SunTrust Bank in its capacity as an issuer of Letters of Credit pursuant to Section 2.24.

“LC Commitment” shall mean that portion of the Aggregate Revolving Commitments that may be used by the Borrower for the issuance of Letters of Credit in an aggregate face amount not to exceed $75,000,000.

“LC Disbursement” shall mean a payment made by the Issuing Bank pursuant to a Letter of Credit.

“LC Documents” shall mean the Letters of Credit and all applications, agreements and instruments relating to the Letters of Credit.

“LC Exposure” shall mean, at any time, the sum of (i) the aggregate undrawn amount of all outstanding Letters of Credit at such time, plus (ii) the aggregate amount of all LC Disbursements that have not been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender shall be its Pro Rata Share of the total LC Exposure at such time.

“Lead Arrangers” shall mean SunTrust Capital Markets, Inc. and J.P. Morgan Securities, Inc.

“Lenders” shall have the meaning assigned to such term in the opening paragraph of this Agreement and shall include, where appropriate, the Swingline Lender and each Additional Lender that joins this Agreement pursuant to Section 2.25.

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“Letter of Credit” shall mean any letter of credit issued pursuant to Section 2.24 by the Issuing Bank for the account of the Borrower pursuant to the LC Commitment.

“LIBOR” shall mean, for any applicable Interest Period with respect to any Eurodollar Loan, the rate per annum for deposits in Dollars for a period equal to such Interest Period appearing on the display designated as Page 3750 on the Dow Jones Markets Service (or such other page on that service or such other service designated by the British Banker’s Association for the display of such Association’s Interest Settlement Rates for Dollar deposits) as of 11:00 a.m. (London, England time) on the day that is two Business Days prior to the first day of the Interest Period, or if such Page 3750 is unavailable for any reason at such time, the corresponding rate which appears on the Reuters Screen ISDA Page as of such date and such time; provided, that if the Administrative Agent determines that the relevant foregoing sources are unavailable for the relevant Interest Period, LIBOR shall mean the rate of interest determined by the Administrative Agent to be the average (rounded upward, if necessary, to the nearest 1/100^th of 1%) of the rates per annum at which deposits in Dollars are offered to the Administrative Agent two (2) Business Days preceding the first day of such Interest Period by leading banks in the London interbank market as of 10:00 a.m. for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Loan of the Administrative Agent.

“Lien” shall mean any mortgage, pledge, security interest, lien (statutory or otherwise), charge, encumbrance, hypothecation, assignment, deposit arrangement or other arrangement having the practical effect of the foregoing or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having the same economic effect as any of the foregoing).

“Loan Documents” shall mean, collectively, this Agreement, any promissory notes issued pursuant hereto, the LC Documents, all Notices of Borrowing, all Notices of Conversion/Continuation, the Subsidiary Guarantee Agreement, the Security Documents, any separate letter agreement(s) relating to any fees payable to the Administrative Agent or any of its Affiliates, and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing.

“Loan Parties” shall mean the Borrower and the Subsidiary Loan Parties.

“Loans” shall mean all Revolving Loans, Swingline Loans and Term Loans in the aggregate, or any of them, as the context shall require.

“Material Adverse Effect” shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singularly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, a material adverse change in, or a material adverse effect on, (i) the business, results of operations, financial condition, assets, liabilities or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Loan Parties to perform any of their respective obligations under the Loan Documents, (iii) the rights and remedies of the

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Administrative Agent, the Issuing Bank and the Lenders under any of the Loan Documents or (iv) the legality, validity or enforceability of any of the Loan Documents.

“Material Indebtedness” shall mean Indebtedness (other than the Loans and Letters of Credit) or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and the Subsidiaries in an aggregate principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.

“Maturity Date” shall mean, with respect to the Term Loans, the earlier of (i) December 1, 2013 or (ii) the date on which the principal amount of all outstanding Term Loans have been declared or automatically have become due and payable (whether by acceleration or otherwise).

“Moody’s” shall mean Moody’s Investors Service, Inc.

“Multiemployer Plan” shall have the meaning set forth in Section 4001(a)(3) of ERISA.

“Net Cash Proceeds” shall mean (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and cash equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of reasonable and customary attorneys’ fees, accountants’ fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other reasonable and customary fees and expenses, in each case, to the extent actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), and (b) in connection with any issuance or sale of equity securities or debt securities or instruments or the incurrence of Indebtedness, the cash proceeds and any non-cash consideration (valued at the initial principal amount thereof in the case of non-cash consideration consisting of notes or other debt securities and valued at fair market value (as determined by the Administrative Agent) in the case of other non-cash consideration) received from such issuance or incurrence, net of reasonable and customary attorneys’ fees, investment banking fees, accountants’ fees, underwriting discounts and commissions and other reasonable and customary fees and expenses, in each case, to the extent actually incurred in connection therewith.

“Notices of Borrowing” shall mean, collectively, the Notices of Revolving Borrowing and the Notices of Swingline Borrowing.

“Notice of Conversion/Continuation” shall mean the notice given by the Borrower to the Administrative Agent in respect of the conversion or continuation of an outstanding Borrowing as provided in Section 2.9(b) hereof.

“Notice of Revolving Borrowing” shall have the meaning as set forth in Section 2.3.

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“Notice of Swingline Borrowing” shall have the meaning as set forth in Section 2.5.

                “Obligations” shall mean all amounts owing by the Borrower to the Administrative Agent, the Issuing Bank or any Lender (including the Swingline Lender) pursuant to or in connection with this Agreement, any Loan Documents, including without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), all Hedge/Cash Management Exposure, all reimbursement obligations, fees, expenses, indemnification and reimbursement payments, costs and expenses (including all fees and expenses of counsel to the Administrative Agent and any Lender (including the Swingline Lender) incurred pursuant to this Agreement, any Loan Documents or agreements referred to in the definition of Hedge/Cash Management Exposure), whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or thereunder, together with all renewals, extensions, modifications or refinancings thereof.

“Off-Balance Sheet Liabilities”  of any Person shall mean (i) any repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (ii) any liability of such Person under any sale and leaseback transactions that do not create a liability on the balance sheet of such Person, (iii) any liability of such Person under any so-called “synthetic” lease transaction or (iv) any obligation arising with respect to any other transaction that is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person.

“Other Taxes” shall mean any and all present or future stamp or documentary taxes or any other excise (that do not constitute Excluded Taxes) or property taxes (that do not constitute Excluded Taxes), charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

“Participant” shall have the meaning set forth in Section 10.4(c).

“Payment Office” shall mean the office of the Administrative Agent located at 303 Peachtree Street, 25^th Floor, Atlanta, Georgia 30308, or such other location as to which the Administrative Agent shall have given written notice to the Borrower and the other Lenders.

“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA, and any successor entity performing similar functions.

“Permitted Encumbrances” shall mean:

(i)             Liens imposed by law for taxes not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP;

(ii)           statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by

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appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP;

(iii)          pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;

(iv)          deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(v)           judgment and attachment liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP;

(vi)          easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or materially interfere with the ordinary conduct of business of the Borrower and its Subsidiaries taken as a whole;

(vii)         Capital Lease Obligations to the extent permitted hereunder;

(viii)        Liens securing purchase money indebtedness to the extent permitted pursuant to Section 7.1 hereunder;

(x)            Liens created by the Security Documents or otherwise provided for in this Agreement for the benefit of the Lenders;

(xi)           any Lien in favor of the United States of America or any department or agency thereof, in favor of any state government or political subdivision thereof, or in favor of a prime contractor under a government contract of the United States, or of any political subdivision thereof, and in each case, resulting from acceptance of partial progress, advance or other payments in the ordinary course of business under government contracts of the United States, or of any state government or political subdivision thereof, or subcontracts thereunder; and

(xii)          statutory Liens arising under ERISA created in the ordinary course of business for amounts not yet due and as to which adequate reserves have been established in accordance with GAAP.

“Permitted Investments” shall mean:

(i)            direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one year from the date of acquisition thereof;

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(ii)           commercial paper having a rating of at least A-1 by S&P and P-1 by Moody’s, at the time of acquisition thereof, and in either case maturing within one year from the date of acquisition thereof;

(iii)          certificates of deposit, bankers’ acceptances and time deposits maturing within one year of the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States or any state thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;

(iv)          fully collateralized repurchase agreements with a term of not more than 90 days for securities described in clause (i) above and entered into with a financial institution satisfying the criteria described in clause (iii) above;

(v)           mutual funds investing solely in any one or more of the Permitted Investments described in clauses (i) through (iv) above.

(vi)          investments in obligations the return with respect to which is excludable from gross income under Section 103 of the Code, having a maturity of not more than one year or providing the holder the right to put such obligations for purchase at par upon not more than twenty-eight (28) days’ notice, and which are rated at least P-1 by S&P or Vmig 1 by Moody’s;

(vii)         investments in taxable money market funds all of whose assets consist of securities have a rating of at least A-1 by S&P and P-1 by Moody’s and investments in tax free money market funds all of whose assets consist of securities of the types described in the foregoing clause (vi) above;

(viii)        investments, redeemable upon not more than seven (7) days’ notice, in money market preferred municipal bond funds that are rated at least A by S&P or A by Moody’s;

(ix)           obligations of domestic corporations with a term of not more than one year, with a long term debt rating of no less than A by S&P and A by Moody’s; and

                (x)            investments in money market funds that either (a) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940 or (b) both (A) provide for daily liquidity and (B) have the highest rating by at least one nationally recognized rating agency.

“Permitted Subordinated Debt” shall mean any Indebtedness of the Borrower or any Domestic Subsidiary (i) that is expressly subordinated to the Obligations on terms reasonably satisfactory to the Required Lenders, (ii) that matures by its terms no earlier than six months after the later of the Revolving Commitment Termination Date and the Maturity Date then in effect with no scheduled principal payments permitted prior to such maturity, (iii) that is evidenced by an indenture or other similar agreement that is in a form reasonably satisfactory to the Administrative Agent; and (iv) such Indebtedness on a pro forma basis would not violate the terms of this Agreement.

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“Person” shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority.

“Plan” shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Pledge Agreement”  shall mean the Pledge Agreement, dated as of the Closing Date, executed by the Borrower and each Domestic Subsidiary that (i) directly owns another Domestic Subsidiary or (ii) that owns capital stock of any Foreign Subsidiary.

“Pro Forma Basis” shall mean, for purposes of calculating compliance with respect to a proposed Acquisition, that such transaction shall be deemed to have occurred as of the first day of the four fiscal-quarter period ending as of the most recent fiscal quarter end preceding the date of such transaction. For purposes of any such calculation in respect of any Acquisition as referred to in Section 7.4, (a) any Indebtedness incurred or assumed in connection with such transaction that is not retired in connection with such transaction (i) shall be deemed to have been incurred as of the first day of the applicable period and (ii) if such Indebtedness has a floating or formula rate of interest, shall have an implied rate of interest for the applicable period for purposes of this definition determined by utilizing the rate that is or would be in effect with respect to such Indebtedness as at the relevant date of determination, (b) income statement items (whether positive or negative) and capital expenditures attributable to the Person or property acquired shall be included beginning as of the first day of the applicable period and (c) pro forma adjustments may be included to the extent that such adjustments are calculated in a manner not inconsistent with GAAP and would give effect to events that are (i) directly attributable to such transaction and (ii) expected to have a continuing impact on the Borrower.

“Pro Forma Compliance Certificate”  shall mean a certificate of a Responsible Officer of the Borrower delivered to the Administrative Agent in connection with any Acquisition as referred to in Section 7.4, and containing a reasonably detailed calculation of compliance with the ratio requirement of Section 7.4, upon giving effect to the applicable transaction on a Pro Forma Basis, as of the most recent fiscal quarter end preceding the date of the applicable transaction.

“Pro Rata Share” shall mean (i) with respect to any Commitment or Loan of any Lender at any time, a fraction (expressed as a percentage), the numerator of which shall be such Commitment or Loan of such Lender (or if the Commitments of such Class have been terminated or expired or the Loans of such Class have been declared to be due and payable, such Lender’s Revolving Credit Exposure or Term Loan, as applicable), and the denominator of which shall be the sum of such Commitments or Loans of such Class of all Lenders (or if the Commitments of such Class have been terminated or expired or the Loans have been declared to be due and payable, all Revolving Credit Exposure or Term Loans, as applicable, of all Lenders) and (ii) with respect to all Commitments and Loans of any Lender at any time, a fraction (expressed as a percentage), the numerator of which shall be the sum of such Lender’s Revolving Commitment (or if the Revolving Commitments have been terminated or expired or the Loans have been

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declared to be due and payable, such Lender’s Revolving Credit Exposure) and Term Loan and the denominator of which shall be the sum of all Lenders’ Revolving Commitments (or if the Revolving Commitments have been terminated or expired or the Loans have been declared to be due and payable, all Revolving Credit Exposure of all Lenders) and Term Loans.

 “Recovery Event” shall mean any settlement of or payment in respect of any property or casualty insurance claim or any eminent domain proceeding relating to any asset of the Borrower or any of its Subsidiaries.

“Regulation D” shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.

“Reinvestment Deferred Amount” shall mean, with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Borrower or any Subsidiary in connection therewith that are not immediately applied to prepay Loans or reduce the Revolving Commitments pursuant to Section 2.13 as a result of the delivery of a Reinvestment Notice.

“Reinvestment Event” shall mean any Asset Sale or Recovery Event in respect of which the Borrower has delivered a Reinvestment Notice.

“Reinvestment Notice” shall mean a written notice executed by a Responsible Officer of the Borrower stating that no Event of Default has occurred and is continuing and that the Borrower (directly, or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire replacement assets useful in the business of the Borrower and its Subsidiaries.

“Reinvestment Prepayment Amount” shall mean, with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amounts expended prior to the relevant Reinvestment Prepayment Date to acquire assets useful in the business of the Borrower and its Subsidiaries.

“Reinvestment Prepayment Date” shall mean, with respect to any Reinvestment Event, the earlier of (a) the date occurring three hundred and sixty-five (365) days after such Reinvestment Event, and (b) the date on which the Borrower shall have determined not to acquire assets useful in the business of the Borrower and its Subsidiaries with all or any portion of the relevant Reinvestment Deferred Amount.

“Related Parties” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees and agents of such Person and such Person’s Affiliates.

“Release” shall mean any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.

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“Required Lenders” shall mean, at any time, Lenders holding more than 50% of the aggregate outstanding Revolving Credit Exposure and Term Loans at such time, or if the Lenders have no Revolving Credit Exposure outstanding, then Lenders holding more than 50% of the Aggregate Revolving Commitments and Term Loans.

“Required Revolving Lenders” shall mean, at any time, Lenders holding more than 50% of the aggregate outstanding Revolving Credit Exposure at such time, or if the Lenders have no Revolving Credit Exposure outstanding, then Lenders holding more than 50% of the Aggregate Revolving Commitments.

“Responsible Officer” shall mean any of the president, the chief executive officer, the chief operating officer, the chief financial officer, the controller or an executive vice president of the Borrower or such other representative of the Borrower as may be designated in writing by any one of the foregoing with the consent of the Administrative Agent; and, with respect to the financial covenants only, the president, the chief executive officer, the chief financial officer or the controller of the Borrower.

“Restricted Payment”  shall have the meaning set forth in Section 7.5.

“Restricted Subsidiary” or “Restricted Subsidiaries” shall mean Axonal Information Solutions, Inc., a Delaware corporation, unless and until such time as such entity shall become a Subsidiary Loan Party under Section 5.10.

“Revolving Commitment” shall mean, with respect to each Lender, the obligation of such Lender to make Revolving Loans to the Borrower and to participate in Letters of Credit and Swingline Loans in an aggregate principal amount not exceeding the amount set forth with respect to such Lender on Schedule II, as such schedule may be amended or supplemented pursuant to Section 2.25, or in the case of a Person becoming a Lender after the Closing Date, the amount of the assigned “Revolving Commitment” as provided in the Assignment and Acceptance Agreement executed by such Person as an assignee, or the joinder executed by such Person, in each case as the same may be changed pursuant to terms hereof.

“Revolving Commitment Termination Date” shall mean the earliest of (i) December 1, 2011, (ii) the date on which the Revolving Commitments are terminated pursuant to Section 2.10 and (iii) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise).

“Revolving Credit Exposure” shall mean, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Revolving Loans, such Lender’s LC Exposure and such Lender’s Swingline Exposure.

“Revolving Loan” shall mean a loan made by a Lender (other than the Swingline Lender) to the Borrower under its Revolving Commitment, which may either be a Base Rate Loan or a Eurodollar Loan.

“S&P” shall mean Standard & Poor’s Rating Service, a division of The McGraw-Hill Companies, Inc.

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“Security Documents” shall mean the Assignment and Security Agreement, all financing statements filed in connection with the Assignment and Security Agreement, the Pledge Agreement, and all documents or certificates delivered in connection therewith.

“Subordinated Debt Documents” shall mean any indenture, agreement or similar instrument governing any Permitted Subordinated Debt.

“Subsidiary” shall mean, with respect to any Person (the “parent”), any corporation, partnership, joint venture, limited liability company, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of the applicable date, as well as any other corporation, partnership, joint venture, limited liability company, association or other entity (i) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power, or in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (ii) that is, as of such date, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise indicated, all references to “Subsidiary” hereunder shall mean a Subsidiary of the Borrower. Notwithstanding the foregoing, the term “Subsidiary” shall exclude any Restricted Subsidiary.

“Subsidiary Guarantee Agreement” shall mean the Amended and Restated Subsidiary Guarantee Agreement, dated as of the Closing Date, executed by certain Subsidiaries of the Borrower in favor of the Administrative Agent.

“Subsidiary Loan Party” shall mean any presently existing or hereafter created Subsidiary of Borrower that executes the Subsidiary Guarantee Agreement.

“Swingline Commitment” shall mean the commitment of the Swingline Lender to make Swingline Loans in an aggregate principal amount at any time outstanding not to exceed $10,000,000.

“Swingline Exposure” shall mean, with respect to each Lender, the principal amount of the Swingline Loans for which such Lender is legally obligated either to make a Base Rate Loan or to purchase a participation in accordance with Section 2.5, which shall equal such Lender’s Pro Rata Share of all outstanding Swingline Loans.

“Swingline Lender” shall mean SunTrust Bank.

“Swingline Loan” shall mean a loan made to the Borrower by the Swingline Lender under the Swingline Commitment.

“Swingline Rate” shall mean the Base Rate, or such other interest rate (and with respect to a Swingline Loan that is a Eurodollar Loan, for any Interest Period) as may be mutually agreed between the Swingline Lender and the Borrower.

“Taxes” shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority in respect of the

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execution, delivery, or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document or any payment to the Administrative Agent, the Lenders, or the Issuing Bank hereunder or thereunder.

“Term Loan” shall have the meaning set forth in Section 2.6.

“Term Loan Commitment” shall mean, with respect to each Lender, the obligation of such Lender to make a Term Loan hereunder on the Closing Date in a principal amount not exceeding the amount set forth with respect to such Lender on Schedule II as such Schedule may be amended or supplemented pursuant to Section 2.25. The aggregate principal amount of all Lenders’ Term Loan Commitments on the Closing Date is $200,000,000.

“Type”, when used in reference to a Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Base Rate.

“Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

Section 1.2        Classifications of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g. a “Revolving Loan” or “Term Loan”) or by Type (e.g. a “Eurodollar Loan” or “Base Rate Loan”) or by Class and Type (e.g. “Revolving Eurodollar Loan”). Borrowings also may be classified and referred to by Class (e.g. “Revolving Borrowing”) or by Type (e.g. “Eurodollar Borrowing”) or by Class and Type (e.g. “Revolving Eurodollar Borrowing”).

Section 1.3        Accounting Terms and Determination. Unless otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for such changes approved by the Borrower’s independent public accountants) with the most recent audited consolidated financial statement of the Borrower delivered pursuant to Section 5.1(a); provided, that if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article VI to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article VI for such purpose), then the Borrower’s compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders.

Section 1.4        Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word

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“shall”. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the word “to” means “to but excluding”. Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (iii) the words “hereof”, “herein” and “hereunder” and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific time shall be construed to refer to Central Daylight time or Central Standard time, as applicable, unless specifically indicated otherwise.

ARTICLE II

AMOUNT AND TERMS OF THE COMMITMENTS

Section 2.1         General Description of Facilities. Subject to and upon the terms and conditions herein set forth, (i) the Lenders with Revolving Commitments hereby establish in favor of the Borrower a revolving credit facility pursuant to which the Lenders with Revolving Commitments severally agree (to the extent of each Lender’s Pro Rata Share up to such Lender’s Revolving Commitment) to make Revolving Loans to the Borrower in accordance with Section 2.2, (ii) the Issuing Bank agrees to issue Letters of Credit in accordance with Section 2.24, (iii) the Swingline Lender agrees to make Swingline Loans in accordance with Section 2.4, (iv) each Lender with a Revolving Commitment agrees to purchase a participation interest in the Letters of Credit and the Swingline Loans pursuant to the terms and conditions hereof; provided, that in no event shall the aggregate principal amount of all outstanding Revolving Loans, Swingline Loans and outstanding LC Exposure exceed at any time the Aggregate Revolving Commitments from time to time in effect and (v) each Lender with a Term Loan Commitment severally agrees to make a Term Loan to the Borrower on the Closing Date in a principal amount not exceeding such Lender’s Term Loan Commitment.

Section 2.2         Revolving Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make Revolving Loans to the Borrower from time to time during the Availability Period, ratably in accordance with its Pro Rata Share, in an aggregate principal amount outstanding at any time that will not result in (a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Commitment or (b) the sum of the aggregate Revolving Credit Exposures of all Lenders exceeding the Aggregate Revolving Commitments. During the Availability Period, the Borrower shall be entitled to borrow, prepay and reborrow Revolving Loans in accordance with the terms and conditions of this Agreement; provided, that the Borrower may not borrow or reborrow should there exist a Default or Event of Default.

Section 2.3         Procedure  for Revolving Borrowings. The Borrower shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Revolving Borrowing substantially in the form of Exhibit 2.3 attached hereto (a “Notice of

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Revolving Borrowing”) (x) prior to 11:00 a.m. one (1) Business Day prior to the requested date of each Base Rate Borrowing and (y) prior to 11:00 a.m. three (3) Business Days prior to the requested date of each Eurodollar Borrowing. Each Notice of Revolving Borrowing shall be irrevocable and shall specify: (i) the aggregate principal amount of such Borrowing, (ii) the date of such Borrowing (which shall be a Business Day), (iii) the Type of such Revolving Loan comprising such Borrowing and (iv) in the case of a Eurodollar Borrowing, the duration of the initial Interest Period applicable thereto (subject to the provisions of the definition of Interest Period). Each Revolving Borrowing shall consist entirely of Base Rate Loans or Eurodollar Loans, as the Borrower may request. The aggregate principal amount of each Revolving Eurodollar Borrowing shall be not less than $2,000,000 or a larger multiple of $1,000,000, and the aggregate principal amount of each Revolving Base Rate Borrowing shall not be less than $1,000,000 or a larger multiple of $100,000; provided, that Revolving Base Rate Loans made pursuant to Section 2.5 or Section 2.24(d) may be made in lesser amounts as provided therein. At no time shall the total number of Eurodollar Borrowings outstanding at any time exceed nine. Promptly following the receipt of a Notice of Revolving Borrowing in accordance herewith, the Administrative Agent shall advise each Lender of the details thereof and the amount of such Lender’s Revolving Loan to be made as part of the requested Revolving Borrowing.

Section 2.4         Swingline Commitment. Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Borrower, from time to time during the Availability Period, in an aggregate principal amount outstanding at any time not to exceed the lesser of (i) the Swingline Commitment then in effect and (ii) the difference between the Aggregate Revolving Commitments and the sum of the aggregate Revolving Credit Exposures of all Lenders; provided, that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. The Borrower shall be entitled to borrow, repay and reborrow Swingline Loans in accordance with the terms and conditions of this Agreement.

Section 2.5         Procedure for Swingline Borrowing; Etc.

(a)   The Borrower shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Swingline Borrowing (“Notice of Swingline Borrowing”) prior to 10:00 a.m. on the requested date of each Swingline Borrowing, unless such Swingline Borrowing is a Eurodollar Loan and in such case the request shall be three Business Days prior to such Eurodollar Borrowing. Each Notice of Swingline Borrowing shall be irrevocable and shall specify: (i) the principal amount of such Swingline Loan, (ii) the date of such Swingline Loan (which shall be a Business Day) and the applicable Interest Period if it is a Eurodollar Loan and (iii) the account of the Borrower to which the proceeds of such Swingline Loan should be credited. The Administrative Agent will promptly advise the Swingline Lender, of each Notice of Swingline Borrowing. Each Swingline Loan shall accrue interest at the Swingline Rate. The aggregate principal amount of each Swingline Loan shall be not less than $100,000 or a larger multiple of $50,000, or such other minimum amounts agreed to by the Swingline Lender and the Borrower. The Swingline Lender will make the proceeds of each Swingline Loan available to the Borrower in Dollars in immediately available funds at the account specified by the Borrower in the applicable Notice of Swingline Borrowing not later than 1:00 p.m. on the requested date of such Swingline Loan. The

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Administrative Agent will notify the Lenders on a quarterly basis if any Swingline Loans occurred during such quarter.

(b)   The Swingline Lender, at any time and from time to time in its sole discretion, may, on behalf of the Borrower (which hereby irrevocably authorizes and directs the Swingline Lender to act on its behalf), give a Notice of Revolving Borrowing to the Administrative Agent requesting the Lenders (including the Swingline Lender) to make Base Rate Loans in an amount equal to the unpaid principal amount of any Swingline Loan. Each Lender will make the proceeds of its Revolving Base Rate Loan included in such Borrowing available to the Administrative Agent for the account of the Swingline Lender in accordance with Section 2.8, which will be used solely for the repayment of such Swingline Loan.

(c)   If for any reason a Revolving Base Rate Borrowing may not be (as determined in the sole discretion of the Administrative Agent), or is not, made in accordance with the foregoing provisions, then each Lender (other than the Swingline Lender) shall purchase an undivided participating interest in such Swingline Loan in an amount equal to its Pro Rata Share thereof on the date that such Revolving Base Rate Borrowing should have occurred. On the date of such required purchase, each Lender shall promptly transfer, in immediately available funds, the amount of its participating interest to the Administrative Agent for the account of the Swingline Lender. If such Swingline Loan bears interest at a rate other than the Base Rate, such Swingline Loan shall automatically become a Base Rate Loan on the effective date of any such participation and interest shall become payable on demand.

(d)   Each Lender’s obligation to make a Revolving Base Rate Loan pursuant to Section 2.5(b) or to purchase the participating interests pursuant to Section 2.5(c) shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (i) any setoff, counterclaim, recoupment, defense or other right that such Lender or any other Person may have or claim against the Swingline Lender, the Borrower or any other Person for any reason whatsoever, (ii) the existence of a Default or an Event of Default or the termination of any Lender’s Revolving Commitment, (iii) the existence (or alleged existence) of any event or condition which has had or could reasonably be expected to have a Material Adverse Effect, (iv) any breach of this Agreement or any other Loan Document by the Borrower, the Administrative Agent or any Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If such amount is not in fact made available to the Swingline Lender by any Lender, the Swingline Lender shall be entitled to recover such amount on demand from such Lender, together with accrued interest thereon for each day from the date of demand thereof at the Federal Funds Rate. Until such time as such Lender makes its required payment, the Swingline Lender shall be deemed to continue to have outstanding Swingline Loans in the amount of the unpaid participation for all purposes of the Loan Documents. In addition, such Lender shall be deemed to have assigned any and all payments made of principal and interest on its Loans and any other amounts due to it hereunder, to the Swingline Lender to fund the amount of such Lender’s participation interest in such Swingline Loans that such Lender failed to fund pursuant to this Section, until such amount has been purchased in full.

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Section 2.6         Term Loan Commitments. Subject to the terms and conditions set forth herein, each Lender severally agrees to make a single loan (each, a “Term Loan”) to the Borrower on the Closing Date in a principal amount not to exceed the Term Loan Commitment of such Lender; provided, that if for any reason the full amount of such Lender’s Term Loan Commitment is not fully drawn on the Closing Date, the undrawn portion thereof shall automatically be cancelled. The Term Loans may be, from time to time, Base Rate Loans or Eurodollar Loans or a combination thereof; provided, that on the Closing Date all Term Loans shall be Base Rate Loans. The execution and delivery of this Agreement by the Borrower and the satisfaction of all conditions precedent pursuant to Section 3.1 shall be deemed to constitute the Borrower’s request to borrow the Term Loans on the Closing Date.

Section 2.7         Intentionally Omitted.

Section 2.8         Funding of Borrowings.

(a)   Each Lender will make available each Loan to be made by it hereunder on the proposed date thereof by wire transfer in immediately available funds by 11:00 a.m. to the Administrative Agent at the Payment Office; provided, that the Swingline Loans will be made as set forth in Section 2.5. The Administrative Agent will give each Lender reasonable notice of Borrower’s Notice of Revolving Borrowing and will make such Loans available to the Borrower by promptly crediting the amounts that it receives, in like funds by the close of business on such proposed date, to an account maintained by the Borrower with the Administrative Agent or at the Borrower’s option, by effecting a wire transfer of such amounts to an account designated by the Borrower to the Administrative Agent.

(b)   Unless the Administrative Agent shall have been notified by any Lender prior to 5 p.m. one (1) Business Day prior to the date of a Borrowing in which such Lender is participating that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date, and the Administrative Agent, in reliance on such assumption, may make available to the Borrower on such date a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender on the date of such Borrowing, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest at the Federal Funds Rate for up to two (2) days and thereafter at the rate specified for such Borrowing. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent together with interest at the rate specified for such Borrowing. Nothing in this subsection shall be deemed to relieve any Lender from its obligation to fund its Pro Rata Share of any Borrowing hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder.

(c)   All Loans (other than Swingline Loans) shall be made by the Lenders on the basis of their respective Pro Rata Shares. No Lender shall be responsible for any default

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by any other Lender in its obligations hereunder, and each Lender shall be obligated to make its Loans provided to be made by it hereunder, regardless of the failure of any other Lender to make its Loans hereunder.

Section 2.9         Interest Elections.

(a)   Each Borrowing initially shall be of the Type specified in the applicable Notice of Borrowing, and in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Notice of Borrowing. Thereafter, the Borrower may elect to convert such Borrowing into a different Type or to continue such Borrowing, and in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. Swingline Borrowings may not be converted or continued.

(b)   To make an election pursuant to this Section, the Borrower shall give the Administrative Agent prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing (a “Notice of Conversion/Continuation”) that is to be converted or continued, as the case may be, (x) prior to 11:00 a.m. one (1) Business Day prior to the requested date of a conversion into a Base Rate Borrowing and (y) prior to 11:00 a.m. three (3) Business Days prior to a continuation of or conversion into a Eurodollar Borrowing. Each such Notice of Conversion/Continuation shall be irrevocable and shall specify (i) the Borrowing to which such Notice of Conversion/Continuation applies and if different options are being elected with respect to different portions thereof, the portions thereof that are to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Notice of Conversion/Continuation, which shall be a Business Day, (iii) whether the resulting Borrowing is to be a Base Rate Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is to be a Eurodollar Borrowing, the Interest Period applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of “Interest Period”. If any such Notice of Conversion/Continuation requests a Eurodollar Borrowing but does not specify an Interest Period, the Borrower shall be deemed to have selected an Interest Period of one month. The principal amount of any resulting Borrowing shall satisfy the minimum borrowing amount for Eurodollar Borrowings and Base Rate Borrowings set forth in Section 2.3.

(c)   If, on the expiration of any Interest Period in respect of any Eurodollar Borrowing, the Borrower shall have failed to deliver a Notice of Conversion/ Continuation, then, unless such Borrowing is repaid as provided herein, the Borrower shall be deemed to have elected to convert such Borrowing to a Base Rate Borrowing. No Borrowing may be converted into, or continued as, a Eurodollar Borrowing if a Default or an Event of Default exists, unless the Administrative Agent and each of the Lenders shall have otherwise consented in writing. No conversion of any Eurodollar Loans shall be permitted except on the last day of the Interest Period in respect thereof.

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(d)   Upon receipt of any Notice of Conversion/Continuation, the Administrative Agent shall promptly notify each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

Section 2.10         Optional Reduction and Termination of Commitments.

(a)   Unless previously terminated, all Revolving Commitments and the Swingline Commitment shall terminate on the Revolving Commitment Termination Date. The Term Loan Commitments shall terminate on the Closing Date upon the making of the Term Loans pursuant to Section 2.6.

(b)   Upon at least three (3) Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent (which notice shall be irrevocable), the Borrower may reduce the Aggregate Revolving Commitments in part or terminate the Aggregate Revolving Commitments in whole; provided, that (i) any partial reduction shall apply to reduce proportionately and permanently the Revolving Commitment of each Lender, (ii) any partial reduction pursuant to this Section shall be in an amount of at least $2,000,000 and any larger multiple of $1,000,000, and (iii) no such reduction shall be permitted which would reduce the Aggregate Revolving Commitments to an amount less than the outstanding Revolving Credit Exposures of all Lenders.

Section 2.11         Repayment of Loans.

(a)   The outstanding principal amount of all Revolving Loans shall be due and payable (together with accrued and unpaid interest thereon) on the Revolving Commitment Termination Date.

(b)   The principal amount of each Swingline Borrowing shall be due and payable (together with accrued and unpaid interest thereon) on the earlier of (i) the last day of the Interest Period applicable to such Borrowing, if any, and (ii) the Revolving Commitment Termination Date.

(c)   The Borrower unconditionally promises to pay to the Administrative Agent, for the account of the Lenders that have made Term Loans, the then unpaid principal amount of the Term Loans in equal quarterly installments of $500,000 each, payable on the last day of each March, June, September and December, commencing on March 31, 2007, each such installment to be allocated to the Lenders based upon their Pro Rata Shares of the Term Loans; provided, that, to the extent not previously paid, the aggregate unpaid principal balance of the Term Loans (together with accrued and unpaid interest thereon) shall be due and payable on the Maturity Date.

Section 2.12         Evidence of Indebtedness.

(a)   Each Lender shall maintain in accordance with its usual practice appropriate records evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain appropriate records in which shall be recorded

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(i) the Revolving Commitment and Term Loan Commitment of each Lender, (ii) the amount of each Loan made hereunder by each Lender, the Class and Type thereof and the Interest Period applicable thereto, (iii) the date of each continuation thereof pursuant to Section 2.9, (iv) the date of each conversion of all or a portion thereof to another Type pursuant to Section 2.9, (v) the date and amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder in respect of such Loans and (vi) both the date and amount of any sum received by the Administrative Agent hereunder from the Borrower in respect of the Loans and each Lender’s Pro Rata Share thereof. The entries made in such records shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, that the failure or delay of any Lender or the Administrative Agent in maintaining or making entries into any such record or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans (both principal and unpaid accrued interest) of such Lender in accordance with the terms of this Agreement.

(b)   Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 10.4) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns) until such time as the promissory note requirement is waived by the holder thereof.

Section 2.13         Optional and Mandatory Prepayments.

(a)   The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, without premium or penalty, by giving irrevocable written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent no later than (i) in the case of prepayment of any Eurodollar Borrowing, 11:00 a.m. not less than three (3) Business Days prior to any such prepayment, (ii) in the case of any prepayment of any Base Rate Borrowing, not less than one Business Day prior to the date of such prepayment, and (iii) in the case of Swingline Borrowings, prior to 11:00 a.m. on the date of such prepayment. Each such notice shall be irrevocable and shall specify the proposed date of such prepayment and the principal amount of each Borrowing or portion thereof to be prepaid. Upon receipt of any such notice, the Administrative Agent shall promptly notify each affected Lender of the contents thereof and of such Lender’s Pro Rata Share of any such prepayment. If such notice is given, the aggregate amount specified in such notice shall be due and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid in accordance with Section 2.14(d); provided, that if a Eurodollar Borrowing is prepaid on a date other than the last day of an Interest Period applicable thereto, the Borrower shall also pay all amounts required pursuant to Section 2.20. Each partial prepayment of any Loan (other than a Swingline Loan) shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type

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pursuant to Section 2.2 or in the case of a Swingline Loan pursuant to Section 2.5. Each prepayment of a Borrowing shall be applied ratably to the Loans comprising such Borrowing, and in the case of a prepayment of a Term Loan Borrowing, to principal installments as specified by the Borrower.

(b)   If on any date the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds in excess of $10,000,000 in any fiscal year from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall have been delivered previously to the Administrative Agent in respect thereof, such Net Cash Proceeds shall immediately be applied to the prepayment of the Obligations in accordance with clause (e) below; provided, that on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied to the prepayment of Loans.

(c)   If on any date the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any equity issuance (other than equity issuances pursuant to stock incentive plans or other equity award agreements for employees of the Borrower or a Subsidiary and Investments permitted under Section 7.4 that consist of equity issued on an intercompany basis among the Borrower and its Subsidiaries) or from the issuance of Permitted Subordinated Debt, and the proceeds thereof are not applied to an Acquisition permitted herein within ninety (90) days of such issuance, then in such event, such Net Cash Proceeds shall immediately be applied to the prepayment of the Obligations in accordance with clause (e) below.

(d)   Within 15 days after the delivery to the Agent of the annual audited financial statements for any fiscal year of the Borrower, commencing with the 2007 fiscal year, and no later than 90 days after the last day of such fiscal year, Borrower shall immediately prepay the Obligations in accordance with clause (e) below by an amount equal to 50% of Excess Cash Flow for such fiscal year; provided, however, that no such prepayment shall be required if the ratio of Consolidated Total Funded Debt to Consolidated EBITDA as of the last day of such fiscal year is less than 3.50 to 1.0.

(e)   Any prepayments made by the Borrower pursuant to Sections 2.13(b), (c) or (d) above shall be applied as follows: first, to Administrative Agent’s fees and reimbursable expenses then due and payable pursuant to any of the Loan Documents; second, to all reimbursable expenses of the Lenders and all fees and reimbursable expenses of the Issuing Bank then due and payable pursuant to any of the Loan Documents, pro rata to the Lenders and the Issuing Bank based on their respective pro rata shares of such fees and expenses; third, to interest and fees then due and payable hereunder, pro rata to the Lenders based on their respective pro rata shares of such interest and fees; fourth, to the principal balance of the Term Loans, until the same shall have been paid in full, pro rata to the Lenders based on their Pro Rata Shares of the Term Loans, and applied to installments of the Term Loans in inverse order of maturity; fifth, to the principal balance of the Swing Line Loans, until the same shall have been paid in full, to the Swingline Lender, sixth, to the principal balance of the Revolving Loans, until the same shall have been paid in full, pro rata to the Lenders based on their respective Revolving Commitments and seventh, to cash collateralize the Letters of Credit in

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accordance with Section 2.24(g) in an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid fees thereon. The Revolving Commitments of the Lenders shall not be permanently reduced by the amount of any prepayments made pursuant to clauses fifth through seventh above, unless an Event of Default has occurred and is continuing and the Required Revolving Lenders so request.

(f)   If at any time the Revolving Credit Exposure of all Lenders exceeds the Aggregate Revolving Commitments, as reduced pursuant to Section 2.10 or otherwise, the Borrower shall immediately repay Swingline Loans and Revolving Loans in an amount equal to such excess, together with all accrued and unpaid interest on such excess amount and any amounts due under Section 2.20. Each prepayment shall be applied first to Swingline Loans to the full extent thereof, second to Base Rate Loans to the full extent thereof, and finally to Eurodollar Loans to the full extent thereof. If after giving effect to prepayment of all Swingline Loans and Revolving Loans, the Revolving Credit Exposure of all Lenders exceeds the Aggregate Revolving Commitments, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Issuing Bank and the Lenders, an amount in cash equal to such excess plus any accrued and unpaid fees thereon to be held as collateral for the LC Exposure. Such account shall be administered in accordance with Section 2.24(g) hereof.

Section 2.14         Interest on Loans.

(a)   The Borrower shall pay interest on each Base Rate Loan at the Base Rate in effect from time to time plus, in each case, the Base Rate Margin in effect from time to time and on each Eurodollar Loan at the Adjusted LIBO Rate for the applicable Interest Period in effect for such Loan, plus, in each case, the Eurodollar Margin in effect from time to time.

(b)   The Borrower shall pay interest on each Swingline Loan at the Swingline Rate.

(c)   While an Event of Default exists or after acceleration, at the option of the Required Lenders, the Borrower shall pay interest (“Default Interest”) with respect to all Eurodollar Loans at the rate otherwise applicable for the then-current Interest Period plus an additional 2% per annum until the last day of such Interest Period, and thereafter, and with respect to all Base Rate Loans and all other Obligations hereunder (other than Loans), at the rate in effect for Base Rate Loans, plus an additional 2% per annum.

(d)   Interest on the principal amount of all Loans shall accrue from and including the date such Loans are made to but excluding the date of any repayment thereof. Interest on all outstanding Base Rate Loans shall be payable quarterly in arrears on the last day of each March, June, September and December and on the Revolving Commitment Termination Date or the Maturity Date, as applicable. Interest on all outstanding Eurodollar Loans shall be payable on the last day of each Interest Period applicable thereto, and, in the case of any Eurodollar Loans having an Interest Period in excess of three months or 90 days, respectively, on each day which occurs every three months or 90 days, as applicable, after the initial date of such Interest Period, and on the Revolving

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Commitment Termination Date or the Maturity Date, as applicable. Interest on each Swingline Loan shall be payable on the maturity of such Loan, which shall be the last day of the Interest Period applicable thereto, and on the Revolving Commitment Termination Date. Interest on any Loan which is converted into a Loan of another Type or which is repaid or prepaid shall be payable on the date of such conversion or on the date of any such repayment or prepayment (on the amount repaid or prepaid) thereof. All Default Interest shall be payable on demand.

(e)   The Administrative Agent shall determine each interest rate applicable to the Loans hereunder and shall promptly notify the Borrower and the Lenders of such rate in writing (or by telephone, promptly confirmed in writing). Any such determination shall be presumed correct for all purposes, absent manifest error.

Section 2.15         Fees.

(a)   Administrative Agent’s Fee. The Borrower shall pay to the Administrative Agent for its own account, fees in the amounts and at the times previously agreed upon by the Borrower and the Administrative Agent.

(b)   Commitment Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Percentage (on an annualized basis but determined daily in accordance with Schedule I) on the daily amount of the unused Revolving Commitment of such Lender during the Availability Period. For purposes of computing commitment fees with respect to the Revolving Commitments, the Revolving Commitment of each Lender shall be deemed used to the extent of the outstanding Revolving Loans and LC Exposure of such Lender, however Swingline Loans shall not be deemed usage of Revolving Commitments. The Commitment Fee shall initially be at Level IV.

(c)   Letter of Credit Fees. The Borrower agrees to pay (i) to the Administrative Agent, for the account of each Lender, a letter of credit fee with respect to its participation in each Letter of Credit, which shall accrue at the Applicable Percentage (on an annualized basis but determined daily in accordance with Schedule I) then in effect on the average daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) attributable to such Letter of Credit during the period from and including the date of issuance of such Letter of Credit to but excluding the date on which such Letter expires or is drawn in full (including without limitation any LC Exposure that remains outstanding after the Revolving Commitment Termination Date) and (ii) to the Issuing Bank for its own account a fronting fee, which shall accrue at the rate of 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the Availability Period (or until the date that such Letter of Credit is irrevocably canceled, whichever is later), as well as the Issuing Bank’s standard fees with respect to issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Notwithstanding anything in this subsection to the contrary, while an Event of Default exists, at the option of the Required Lenders, the Applicable Percentage for Letters of Credit shall accrue at Level VI of Schedule I.

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(d)   Payments. Accrued fees under subsection (b) and (c)(i) of this Section shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing on December 31, 2006, and on the Revolving Commitment Termination Date (and if later, the date the Loans and LC Exposure shall be repaid in their entirety). Fees under subsection (c)(ii) of this Section shall be payable in advance on the date of the issuance of the Letter of Credit for the term of such Letter of Credit. Interest shall accrue on any unpaid fee at the rate in effect for Base Rate Loans, plus an additional 2% per annum.

Section 2.16         Computation of Interest and Fees.

To the extent permitted by applicable law, all computations of fees and interest under this Agreement payable in respect of any period shall be made by the Administrative Agent on the basis of a 360-day year, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such fees or interest are payable; provided, however, that computations regarding interest accruing with reference to the Base Rate shall be made on the basis of a 365-day (or 366-day, as applicable) year and the actual number of days (including the first day but excluding the last day) occurring in the period for which interest is payable. Each determination by the Administrative Agent of an interest amount or fee hereunder shall be made in good faith and, except for manifest error, shall be presumed correct for all purposes.

Section 2.17         Inability to Determine Interest Rates. If prior to the commencement of any Interest Period for any Eurodollar Borrowing,

(i)            the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant interbank market, adequate means do not exist for ascertaining LIBOR for such Interest Period, or

(ii)           the Administrative Agent shall have received notice from the Required Lenders that the Adjusted LIBO Rate does not adequately and fairly reflect the cost to such Lenders (or Lender, as the case may be) of making, funding or maintaining their (or its, as the case may be) Eurodollar Loans for such Interest Period,

the Administrative Agent shall give written notice (or telephonic notice, promptly confirmed in writing) to the Borrower and to the Lenders as soon as practicable thereafter. In the case of Eurodollar Loans, until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) the obligations of the Lenders to make Eurodollar Revolving Loans or to continue or convert outstanding Loans as or into Eurodollar Loans shall be suspended and (ii) all such affected Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto unless the Borrower prepays such Loans in accordance with this Agreement. Unless the Borrower notifies the Administrative Agent at least one Business Day before the date of any Eurodollar Revolving Borrowing for which a Notice of Revolving Borrowing has previously been given that it elects

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not to borrow on such date, then such Revolving Borrowing shall be made as a Base Rate Borrowing.

Section 2.18         Illegality. If any Change in Law shall make it unlawful or impossible for any Lender to make, maintain or fund any Eurodollar Loan and such Lender shall so notify the Administrative Agent, the Administrative Agent shall promptly give notice thereof to the Borrower and the other Lenders, whereupon until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Eurodollar Revolving Loans, or to continue or convert outstanding Loans as or into Eurodollar Loans, shall be suspended. In the case of the making of a Eurodollar Revolving Borrowing, such Lender’s Revolving Loan shall be made as a Base Rate Loan as part of the same Revolving Borrowing for the same Interest Period and if the affected Eurodollar Loan is then outstanding, such Loan shall be converted to a Base Rate Loan either (i) on the last day of the then current Interest Period applicable to such Eurodollar Loan if such Lender may lawfully continue to maintain such Loan to such date or (ii) immediately if such Lender shall determine that it may not lawfully continue to maintain such Eurodollar Loan to such date. Notwithstanding the foregoing, the affected Lender shall, prior to giving such notice to the Administrative Agent, designate a different Applicable Lending Office if such designation would avoid the need for giving such notice and if such designation would not otherwise be disadvantageous to such Lender in the good faith exercise of its discretion.

Section 2.19         Increased Costs.

(a)   If any Change in Law shall:

(i)            impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of the Adjusted LIBO Rate hereunder against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or

(ii)           impose on any Lender or on the Issuing Bank or the eurodollar interbank market any other condition affecting this Agreement or any Eurodollar Loans made by such Lender or any Letter of Credit or any participation therein;

and the result of the foregoing is to increase the actual cost to such Lender of making, converting into, continuing or maintaining a Eurodollar Loan or to increase the actual cost to such Lender or the Issuing Bank of participating in or issuing any Letter of Credit or to reduce the amount received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or any other amount), then the Borrower shall promptly pay, upon written notice from and demand by such Lender on the Borrower (with a copy of such notice and demand to the Administrative Agent), to the Administrative Agent for the account of such Lender, within five Business Days after the date of such notice and demand, additional amount or amounts sufficient to compensate such Lender or the Issuing Bank, as the case may be, for such additional costs actually incurred or reduction actually suffered.

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(b)   If any Lender or the Issuing Bank shall have determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Bank’s capital (or on the capital of such Lender’s or the Issuing Bank’s parent corporation) as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s parent corporation could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Bank’s policies or the policies of such Lender’s or the Issuing Bank’s parent corporation with respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt by the Borrower of written demand by such Lender (with a copy thereof to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s parent corporation for any such reduction suffered.

(c)   A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s parent corporation, as the case may be, specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower (with a copy to the Administrative Agent) and shall be presumed correct, absent manifest error. The Borrower shall pay any such Lender or the Issuing Bank, as the case may be, such amount or amounts within 10 days after receipt thereof.

(d)   Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation.

Section 2.20         Funding Indemnity. In the event of (a) the payment of any principal of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion or continuation of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure by the Borrower to borrow, prepay, convert or continue any Eurodollar Loan on the date specified in any applicable notice (regardless of whether such notice is withdrawn or revoked), then, in any such event, the Borrower shall compensate each Lender, within five (5) Business Days after written demand from such Lender, for any loss, cost or expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense shall be deemed to include an amount determined by such Lender to be the excess, if any, of (A) the amount of interest that would have accrued on the principal amount of such Eurodollar Loan if such event had not occurred at the Adjusted LIBO Rate applicable to such Eurodollar Loan for the period from the date of such event to the last day of the then current Interest Period therefor (or in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Eurodollar Loan) over (B) the amount of interest that would accrue on the principal amount of such Eurodollar Loan for the same period if the Adjusted LIBO Rate were set on the date such Eurodollar Loan was prepaid or converted or the date on which the Borrower failed to borrow, convert or continue such Eurodollar Loan. A certificate as to any additional amount payable under this Section submitted to the Borrower by any Lender shall be presumed correct, absent manifest error.

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Section 2.21         Taxes.

(a)   Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided, that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, any Lender or the Issuing Bank (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b)   In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c)   The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank, within five (5) Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto as a result of the Borrower’s failure to comply with this Section in a timely manner, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall be presumed correct absent manifest error.

(d)   As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e)   Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the Code or any treaty to which the United States is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. Without limiting the generality of the foregoing, each Foreign Lender agrees that it will deliver to the Administrative Agent and the Borrower (or in the case of a Participant, to the Lender from which the related participation shall have been purchased), as appropriate, two (2) duly completed copies of (i) Internal

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Revenue Service Form W-8 ECI, or any successor form thereto, certifying that the payments received from the Borrower hereunder are effectively connected with such Foreign Lender’s conduct of a trade or business in the United States; or (ii) Internal Revenue Service Form W-8 BEN, or any successor form thereto, certifying that such Foreign Lender is entitled to benefits under an income tax treaty to which the United States is a party that reduces the rate of withholding tax on payments of interest; or (iii) Internal Revenue Service Form W-8 BEN, or any successor form prescribed by the Internal Revenue Service, together with a certificate (A) establishing that the payment to such Foreign Lender qualifies as “portfolio interest” exempt from U.S. withholding tax under Code section 871(h) or 881(c), and (B) stating that (1) such Foreign Lender is not a bank for purposes of Code section 881(c)(3)(A), or the obligation of the Borrower hereunder is not, with respect to such Foreign Lender, a loan agreement entered into in the ordinary course of its trade or business, within the meaning of that section; (2) such Foreign Lender is not a 10% shareholder of the Borrower within the meaning of Code section 871(h)(3) or 881(c)(3)(B); and (3) such Foreign Lender is not a controlled foreign corporation that is related to the Borrower within the meaning of Code section 881(c)(3)(C); or (iv) such other Internal Revenue Service forms as may be applicable to such Foreign Lender, including Forms W-8 IMY or W-8 EXP. Each such Foreign Lender shall deliver to the Borrower and the Administrative Agent such forms on or before the date that it becomes a party to this Agreement (or in the case of a Participant, on or before the date such Participant purchases the related participation). In addition, each such Foreign Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender. Each such Foreign Lender shall promptly notify the Borrower and the Administrative Agent at any time that it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the Internal Revenue Service for such purpose).

Section 2.22         Payments Generally; Pro Rata Treatment; Sharing of Set-offs.

(a)   The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.19, 2.20 or 2.21, or otherwise) prior to 12:00 noon, on the Business Day when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at the Payment Office, except payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.19, 2.20 and 2.21 and 10.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars.

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(b)   If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.

(c)   If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or participations in LC Disbursements or Swingline Loans that would result in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and participations in LC Disbursements and Swingline Loans; provided, that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements or Swingline Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(d)   Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount or amounts due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at

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the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

                (e)   If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.5(b) or (c), 2.24(c) or (d), 2.8, 2.22(d) or 10.3(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.

Section 2.23         Mitigation of Obligations. If any Lender requests compensation under Section 2.19, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.21, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the sole judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable under Section 2.19 or Section 2.21, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all costs and expenses incurred by any Lender in connection with such designation or assignment.

Section 2.24         Letters of Credit.

(a)   During the Availability Period, the Issuing Bank, in reliance upon the agreements of the other Lenders pursuant to Section 2.24(d), agrees to issue, at the request of the Borrower, Letters of Credit for the account of the Borrower on the terms and conditions hereinafter set forth; provided, that (i) each Letter of Credit shall expire no later than five (5) Business Days prior to the Revolving Commitment Termination Date; (ii) each Letter of Credit shall be in a stated amount of at least $50,000; and (iii) the Borrower may not request any Letter of Credit, if, after giving effect to such issuance (A) the aggregate LC Exposure would exceed the LC Commitment or (B) the aggregate LC Exposure plus the aggregate outstanding Revolving Loans and Swingline Exposure, of all Lenders, would exceed the Aggregate Revolving Commitments. Upon the issuance of each Letter of Credit each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank without recourse a participation in such Letter of Credit equal to such Lender’s Pro Rata Share of the aggregate amount available to be drawn under such Letter of Credit. Each issuance of a Letter of Credit shall be deemed to utilize the Revolving Commitment of each Lender by an amount equal to the amount of such participation. As of the Closing Date, each of the Existing Letters of Credit shall be deemed issued under this Section and shall thereafter be referred to as Letters of Credit, subject to the terms hereof. The Administrative Agent shall provide the Lenders with relevant information concerning the LC Exposure quarterly upon written request.

(b)   To request the issuance of a Letter of Credit (or any amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall give the Issuing Bank

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and the Administrative Agent irrevocable written notice at least three (3) Business Days prior to the requested date of such issuance specifying the date (which shall be a Business Day) such Letter of Credit is to be issued (or amended, extended or renewed, as the case may be), the expiration date of such Letter of Credit, the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. In addition to the satisfaction of the conditions in Article III, the issuance of such Letter of Credit (or any amendment which increases the amount of such Letter of Credit) will be subject to the further conditions that such Letter of Credit shall be in such form and contain such terms as the Issuing Bank shall approve (which approval shall not be unreasonably withheld) and that the Borrower shall have executed and delivered any additional applications, agreements and instruments relating to such Letter of Credit as the Issuing Bank shall reasonably require; provided, that in the event of any conflict between such applications, agreements or instruments and this Agreement, the terms of this Agreement shall control.

(c)   At least two (2) Business Days prior to the issuance of any Letter of Credit, the Issuing Bank will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received such notice and if not, the Issuing Bank will provide the Administrative Agent with a copy thereof. Unless the Issuing Bank has received notice from the Administrative Agent on or before the Business Day immediately preceding the date the Issuing Bank is to issue the requested Letter of Credit directing the Issuing Bank not to issue the Letter of Credit because such issuance is not then permitted hereunder because of the limitations set forth in Section 2.24(a) or that one or more conditions specified in Article III are not then satisfied, then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, issue such Letter of Credit in accordance with the Issuing Bank’s usual and customary business practices.

(d)   The Issuing Bank shall examine all documents purporting to represent a demand for payment under a Letter of Credit promptly following its receipt thereof. The Issuing Bank shall notify the Borrower and the Administrative Agent of such demand for payment and whether the Issuing Bank has made or will make a LC Disbursement thereunder; provided, that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to such LC Disbursement. The Borrower shall be irrevocably and unconditionally obligated to reimburse the Issuing Bank for any LC Disbursements paid by the Issuing Bank in respect of such drawing, without presentment, demand or other formalities of any kind. Unless the Borrower shall have notified the Issuing Bank and the Administrative Agent prior to 11:00 a.m. on the Business Day immediately prior to the date on which such drawing is honored that the Borrower intends to reimburse the Issuing Bank for the amount of such drawing in funds other than from the proceeds of Revolving Loans, the Borrower shall be deemed to have timely given a Notice of Revolving Borrowing to the Administrative Agent requesting the Lenders to make a Revolving Base Rate Borrowing on the date on which such drawing is honored in an exact amount due to the Issuing Bank; provided, that for purposes solely of such Borrowing, the conditions precedent set forth in Section 3.2 hereof shall not be applicable. The Administrative Agent shall notify the Lenders of such Borrowing in accordance with Section 2.3, and

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each Lender shall make the proceeds of its Revolving Base Rate Loan included in such Borrowing available to the Administrative Agent for the account of the Issuing Bank in accordance with Section 2.8. The proceeds of such Borrowing shall be applied directly by the Administrative Agent to reimburse the Issuing Bank for such LC Disbursement.

(e) If for any reason a Revolving Base Rate Borrowing may not be (as determined in the sole discretion of the Administrative Agent), or is not, made in accordance with the foregoing provisions, then each Lender (other than the Issuing Bank) shall be obligated to fund the participation that such Lender purchased pursuant to subsection (a) in an amount equal to its Pro Rata Share of such LC Disbursement on and as of the date which such Base Rate Borrowing should have occurred. Each Lender’s obligation to fund its participation shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (i) any setoff, counterclaim, recoupment, defense or other right that such Lender or any other Person may have against the Issuing B ank or any other Person for any reason whatsoever, (ii) the existence of a Default or an Event of Default or the termination of the Aggregate Revolving Commitments, (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any of its Subsidiaries, (iv) any breach of this Agreement by the Borrower or any other Lender, (v) any amendment, renewal or extension of any Letter of Credit or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. On the date that such participation is required to be funded, each Lender shall promptly transfer, in immediately available funds, the amount of its participation to the Administrative Agent for the account of the Issuing Bank. Whenever, at any time after the Issuing Bank has received from any such Lender the funds for its participation in a LC Disbursement, the Issuing Bank (or the Administrative Agent on its behalf) receives any payment on account thereof, the Administrative Agent or the Issuin g Bank, as the case may be, will distribute to such Lender its Pro Rata Share of such payment; provided, that if such payment is required to be returned for any reason to the Borrower or to a trustee, receiver, liquidator, custodian or similar official in any bankruptcy proceeding, such Lender will return to the Administrative Agent or the Issuing Bank any portion thereof previously distributed by the Administrative Agent or the Issuing Bank to it.

(f) To the extent that any Lender shall fail to pay any amount required to be paid pursuant to paragraph (d) of this Section on the due date therefor, such Lender shall pay interest to the Issuing Bank (through the Administrative Agent) on such amount from such due date to the date such payment is made at a rate per annum equal to the Federal Funds Rate; provided, that if such Lender shall fail to make such payment to the Issuing Bank within three (3) Business Days of such due date, then, retroactively to the due date, such Lender shall be obligated to pay interest on such amount at the rate set forth in Section 2.14(c).

(g) If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Issuing Bank and the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid fees thereon; provided, that

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the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (g) or (h) of Section 8.1. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest and profits, if any, on such investments shall accumulate in such account. Moneys in such account shall applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it had not been reimbursed and to the extent so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, with the consent of the Required Lenders, be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not so applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived.

                (h) Intentionally Omitted.

(i) The Borrower’s obligation to reimburse LC Disbursements hereunder shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever and irrespective of any of the following circumstances:

(i)            Any lack of validity or enforceability of any Letter of Credit or this Agreement;

(ii)            The existence of any claim, set-off, defense or other right which the Borrower or any Subsidiary or Affiliate of the Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such beneficiary or transferee may be acting), any Lender (including the Issuing Bank) or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction;

(iii)            Any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, if such documents on their face appear to be in order;

(iv)            Payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document to the Issuing Bank that does not comply with the terms of such Letter of Credit;

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(v)            Any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder; or

(vi)            The existence of a Default or an Event of Default.

Neither the Administrative Agent, the Issuing Bank, the Lenders nor any Related Party of any of the foregoing shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to above), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided, that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank’s failure to exercise care when determining whether drafts or other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree, that in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(j) Each Letter of Credit shall be subject to the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time, and, to the extent not inconsistent therewith, the governing law of this Agreement set forth in Section 10.5.

Section 2.25       Increase of Commitments; Additional Lenders. At any time before the Revolving Commitment Termination Date, subject to the terms and conditions set forth herein, the Borrower may at any time and from time to time, by notice to the Administrative Agent (whereupon the Administrative Agent shall promptly deliver a copy to each of the Lenders), request to add additional term loans or additional Revolving Commitments (together, the “Incremental Extensions of Credit”) in minimum principal amounts of $10,000,000 (or $25,000,000 if a new Class of Term Loans is being created); provided that such amount may be less than $10,000,000 (or $25,000,000, as applicable) if such amount represents all the remaining available principal amount set forth below; provided, further, that (i) immediately prior to and after giving effect to any Incremental Facility Amendment (as defined below), no Default or

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Event of Default has occurred or is continuing or shall result therefrom, and (ii) the Borrower shall be in compliance on a Pro Forma Basis with the financial covenants set forth in Article VI recomputed as of the last day of the most recently ended fiscal quarter of the Borrower for which financial statements are available. The Incremental Extensions of Credit:

(a)           shall be in an aggregate principal amount (for this purpose, treating the full amount of all Revolving Commitments as principal) not exceeding $200,000,000;

(b)           shall rank pari passu in right of payment and right of security in respect of the Collateral with the Revolving Loans and Term Loans;

(c)           in the case of additional Revolving Commitments, shall, on the date of the effectiveness of the applicable Incremental Facility Amendment, be added to the then existing Revolving Commitments, and all extensions of credit pursuant thereto shall have the same terms as those that apply to the extensions of credit pursuant to the existing Revolving Commitments; and

(d)           in the case of additional term loans shall either (x) be added to, and form part of the same Class as, one or more Classes (as specified in the respective Incremental Facility Amendment) of theretofore outstanding Term Loans (in which case the same shall have the same terms as the respective Class or Classes to which it is added) or (y) shall represent a new Class of term loans, in which case such new Class of term loans shall have the same terms and be entitled to all of the same rights and privileges (other than amortization and maturity date, which shall be required to be in compliance with the following proviso, and other than pricing), as the Term Loans; provided that (i) the Incremental Extensions of Credit in the form of term loans shall not have a final maturity date earlier than the Maturity Date or the Revolving Commitment Termination Date then applicable to the latest-maturing Loans, and (ii) Incremental Extensions of Credit in the form of a new Class of term loans shall not have a weighted average life to maturity that is shorter than that of the then remaining weighted average life to maturity of the Class of Term Loans with the then longest remaining weighted average life to maturity.

The Borrower shall, in consultation with the Administrative Agent, determine whether to offer the opportunity to provide all or portions of the requested Incremental Extensions of Credit to one or more Lenders (the “Existing Lenders”) that have provided the then existing Revolving Commitments (and extensions of credit pursuant thereto) and/or then outstanding Term Loans (collectively, the “Existing Extensions of Credit”), provided that no Existing Lender shall be obligated to provide any Incremental Extension of Credit unless it so agrees, and/or one or more additional banks, financial institutions or other Persons, it being understood that each bank, financial institution or other Person that elects to extend Incremental Extensions of Credit (each, an “Additional Lender”) shall be required to be reasonably satisfactory to the Borrower and the Administrative Agent (unless the Additional Lender is an Existing Lender) and, in the case of Incremental Extensions of Credit in the form of Revolving Loans, the Issuing Bank, and shall become a Lender under this Agreement (or in the case of an Existing Lender, shall become an Additional Lender with respect to its Incremental Extensions of Credit) pursuant to an amendment (an “Incremental Facility Amendment”) to this Agreement giving effect to the modifications permitted by this Section and, as appropriate, the other Loan Documents and executed only by each Loan Party, each Additional Lender and the Administrative Agent.

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Commitments in respect of Incremental Extensions of Credit shall be Commitments under this Agreement. An Incremental Facility Amendment may, without the consent of any other Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the opinion of the Administrative Agent, to effect the provisions of this Section. The effectiveness of any Incremental Facility Amendment shall be subject to the satisfaction on the date thereof (each, an “Incremental Facility Closing Date”) of each of the following conditions: (i) the conditions set forth in Section 3.2 (it being understood that all references to “the date of such Borrowing” in such Section 3.2 shall be deemed to refer to the Incremental Facility Closing Date), (ii) the Borrower and the Subsidiary Loan Parties shall have delivered such amendments, modifications and/or supplements to the Security Documents as are necessary or, in the reasonable opinion of the Administrative Agent, desirable to ensure that the Incremental Extensions of Credit are secured by, and entitled to the benefits of, the Security Documents, (iii) the Administrative Agent shall have received copies of resolutions executed by (x) the Borrower, authorizing the incurrence of such Incremental Extensions of Credit and (y) each other Loan Party, stating that such Incremental Extensions of Credit are entitled to benefits of the Security Documents and other Loan Documents and (iv) the Borrower shall have delivered to the Administrative Agent an opinion or opinions, in form and substance reasonably satisfactory to the Administrative Agent, from counsel to the Borrower reasonably satisfactory to the Administrative Agent and dated such date, covering such of the matters set forth in the opinions of counsel delivered to the Administrative Agent on the Closing Date pursuant to Section 3.1(b)(vi) as may be reasonably requested by the Administrative Agent, and such other matters as the Administrative Agent may reasonably request (including, without limitation, the matters described in immediately preceding clause (iii)). At the time of any provision of Revolving Commitments constituting Incremental Extensions of Credit pursuant to this Section, the Borrower shall, in coordination with the Administrative Agent, repay outstanding Revolving Loans of certain of the Lenders with outstanding Revolving Loans, and incur additional Revolving Loans from certain other Lenders with outstanding Revolving Loans or Revolving Commitments (including the Additional Lenders with outstanding Revolving Loans or Revolving Commitments), in each case to the extent necessary so that all of the Lenders with Revolving Commitments participate in each outstanding Borrowing of Revolving Loans pro rata on the basis of their respective Revolving Commitments (after giving effect to any increase in the Revolving Commitments pursuant to this Section) and with the Borrower being obligated to pay to the respective Lenders any costs of the type referred to in Section 2.20 in connection therewith.

Section 2.26       Replacement of a Lender. If (i) Borrower is required pursuant to Section 2.19 or 2.21 to make any additional payment to any Lender or (ii) any Lender refuses to consent to a proposed amendment, modification, waiver, discharge or termination with respect to this Agreement that requires the consent of all Lenders (or all affected Lenders) pursuant to Section 10.2 and the same has been approved by the Required Lenders or all other affected Lenders, as applicable (any Lender described in clause (i) or clause (ii) being an “Affected Lender”), the Borrower may elect to replace the Revolving Commitment and/or Term Loans, as applicable, of such Affected Lender, provided that no Event of Default shall have occurred and be continuing at the time of such termination or replacement, and provided further that, concurrently with such replacement, (y) another bank or other Person that is satisfactory to the Borrower and the Administrative Agent shall agree, as of such date, to purchase for cash at par, the Revolving Credit Exposure and Term Loans of the Affected Lender pursuant to an Assignment and

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Acceptance and to become a Lender for all purposes under this Agreement and to assume all obligations of the Affected Lender to be terminated as of such date and to comply with the requirements of Section 10.4 applicable to assignments, and (z) the Borrower shall pay to such Affected Lender in immediately available funds on the day of such replacement (A) all interest, fees and other amounts then accrued and unpaid that are owing to such Affected Lender by the Borrower hereunder to and including the date of termination, including without limitation, payments due to such Affected Lender under Sections 2.19 and 2.21, and (B) an amount, if any, equal to the payment that would have been due to such Lender on the day of such replacement under Section 2.20 had the Loans of such Affected Lender been prepaid on such date rather than sold to the replacement Lender, in each case to the extent not paid by the purchasing lender.

ARTICLE III

CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT

Section 3.1        Conditions To Effectiveness. The obligations of the Lenders (including the Swingline Lender) to make Loans and the obligation of the Issuing Bank to issue any Letter of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.2).

                (a) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Closing Date, including reimbursement or payment of all out-of-pocket expenses (including reasonable fees, charges and disbursements of counsel to the Administrative Agent) required to be reimbursed or paid by the Borrower hereunder, under any other Loan Document and under any agreement with the Administrative Agent or any Lead Arranger.

                (b) The Administrative Agent (or its counsel) shall have received the following:

(i)            a counterpart of this Agreement signed by or on behalf of each party thereto or written evidence satisfactory to the Administrative Agent (which may include telecopy or electronic mail transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement;

(ii)           the Subsidiary Guarantee Agreement duly executed by all Domestic Subsidiaries of the Borrower;

(iii)          duly executed Security Documents, all lien searches requested by the Administrative Agent, and evidence of perfection of the liens evidenced by the Security Documents;

(iv)          a certificate of an authorized officer of each Loan Party, attaching and certifying copies of its bylaws and of the resolutions of its board of directors, authorizing the execution, delivery and performance of the Loan Documents to which it is a party and certifying the name, title and true signature of each officer of such Loan Party executing the Loan Documents to which it is a party, unless such certificate is contemplated to be delivered after the Closing Date pursuant to Section 5.12;

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(v)           certified copies of the certificate of incorporation or other organizational documents of each Loan Party, together with certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of incorporation of such Loan Party and each other jurisdiction where such Loan Party is required to be qualified to do business as a foreign corporation, unless such documents are contemplated to be delivered after the Closing Date pursuant to Section 5.12;

(vi)          a favorable written opinion of Bass, Berry & Sims PLC, counsel to the Loan Parties, and such other written opinions as may be reasonably requested by the Administrative Agent, addressed to the Administrative Agent for the benefit of the Lenders, covering such matters relating to the Loan Parties, the Loan Documents and the transactions contemplated therein as the Administrative Agent or the Required Lenders shall reasonably request;

(vii)         a certificate, dated the Closing Date and signed by a Responsible Officer, confirming compliance with the conditions set forth in paragraphs (a), (b) and (c) of Section 3.2;

(viii)        insurance certificates evidencing the existing insurance coverage of Borrower, Axia and their respective Subsidiaries, naming the Administrative Agent as an additional insured with respect to all liability policies, and including a lender loss payable endorsement in favor of the Administrative Agent with respect to all property/casualty policies covering Collateral;

(ix)           a duly executed Notice of Revolving Borrowing, if applicable;

(x)            a duly executed funds disbursement agreement; and

(xi)           the audited consolidated balance sheet of the Borrower and its Subsidiaries as of August 31, 2006 and the related consolidated statements of income, shareholders’ equity and cash flows for the fiscal year then ended prepared by Ernst & Young, LLP.

                (c) The Axia Acquisition shall have been consummated (or, contemporaneously with the making of the initial Loans hereunder, shall be consummated), and the Administrative Agent shall have received an executed copy of the Axia Acquisition Agreement and all schedules and exhibits thereto and all other material agreements executed in connection therewith, and a certificate or certificates executed by a Responsible Officer of the Borrower as of the Closing Date, in form and substance satisfactory to the Administrative Agent, stating that (A) all conditions to the consummation of the transactions contemplated by the Axia Acquisition Agreement have been satisfied, (B) the Borrower has no knowledge that any representations or warranties contained in the Axia Acquisition Agreement are incorrect in any material respects, (C) all consents, approvals, authorizations, registrations or filings required to be made or obtained by any party to the Axia Acquisition Agreement on or before the Closing Date in connection with the Axia Acquisition have been obtained and are in full force and

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effect, and (D) all applicable waiting periods have expired, and to Borrower’s knowledge no investigation or inquiry by any Governmental Authority regarding the Axia Acquisition exists.

Section 3.2        Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit is subject to the satisfaction of the following conditions at the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable,:

(a) no Default or Event of Default shall exist; and

                (b) all representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct in all material respects on and as of the date of such Borrowing or the date of issuance, amendment, extension or renewal of such Letter of Credit, in each case before and after giving effect thereto, except for (i) representations and warranties effective as of a specified date, which shall remain true and correct as of such specified date, and (ii) changes in facts and circumstances that are not prohibited by the terms of this Agreement;

(c) since the date of the most recent financial statements of the Borrower described in Section 4.4 there shall have been no change that has had or could reasonably be expected to have a Material Adverse Effect; and

                (d) the Administrative Agent shall have received such other documents, certificates, information or legal opinions as the Administrative Agent or the Required Lenders may reasonably request, all in form and substance reasonably satisfactory to the Administrative Agent or the Required Lenders.

Each Borrowing and each issuance, amendment, extension or renewal of any Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section.

Section 3.3        Delivery of Documents. All of the Loan Documents, certificates, legal opinions and other documents and papers referred to in this Article III, unless otherwise specified, shall be delivered to the Administrative Agent for the account of each of the Lenders and shall be in form and substance satisfactory in all respects to the Administrative Agent.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent and each Lender as follows:

Section 4.1        Existence; Power. The Borrower and each of its Subsidiaries (i) is duly organized, validly existing and in good standing as a corporation or limited liability company, as applicable, under the laws of the jurisdiction of its organization, (ii) has all requisite power and

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authority to carry on its business as now conducted, and (iii) is duly qualified to do business, and is in good standing, in each jurisdiction where such qualification is required, except where a failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect.

Section 4.2        Organizational Power; Authorization. The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party are within such Loan Party’s organizational powers and have been duly authorized by all necessary organizational action. This Agreement has been duly executed and delivered by the Borrower, and constitutes, and each other Loan Document to which any Loan Party is a party, when executed and delivered by such Loan Party, will constitute, valid and binding obligations of the Borrower or such Loan Party (as the case may be), enforceable against it in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity.

Section 4.3        Governmental Approvals; No Conflicts. The execution, delivery and performance by the Borrower of this Agreement, and by each Loan Party of the other Loan Documents to which it is a party (a) do not require any consent or approval of, registration or filing with, or any action by, any Governmental Authority, except those as have been obtained or made and are in full force and effect or where the failure to do so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding on the Borrower or any of its Subsidiaries or any of its material assets or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries and (d) will not result in the creation or imposition of any Lien on any material asset of the Borrower or any of its Subsidiaries, except Liens (if any) created under the Loan Documents.

Section 4.4        Financial Statements. The Borrower has furnished to each Lender (i) the audited consolidated balance sheet of the Borrower and its Subsidiaries as of August 31, 2006 and the related consolidated statements of income, shareholders’ equity and cash flows for the fiscal year then ended prepared by Ernst & Young, LLP, (ii) the audited consolidated financial statements of Axia and its Subsidiaries as of its most recently ended fiscal year, including a balance sheet and income and cash flow statements, audited by Clifton Gunderson LLP, and (iii) the unaudited consolidated balance sheet of Axia and its Subsidiaries as of August 31, 2006, and the related unaudited consolidated statements of income and cash flows for the portion of its fiscal year then ended. The financial statements described in clause (i) above fairly present the consolidated financial condition of the Borrower and its Subsidiaries as of the date(s) thereof and the consolidated results of operations of the Borrower and its Subsidiaries for the fiscal year ended August 31, 2006 in conformity with GAAP. Since August 31, 2006, there have been no changes with respect to the Borrower and its Subsidiaries that have had or could reasonably be expected to have, singly or in the aggregate, a Material Adverse Effect.

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Section 4.5        Litigation and Environmental Matters.

(a) Except as set forth on Schedule 4.5(a), no litigation, investigation or proceeding of or before any arbitrators or Governmental Authorities is pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination that could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or (ii) which in any manner draws into question the validity or enforceability of this Agreement or any other Loan Document.

                (b) Except for any matters that would not constitute a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.

Section 4.6        Compliance with Laws and Agreements. The Borrower and each Subsidiary is in compliance with (a) all applicable laws, rules, regulations and orders of any Governmental Authority, and (b) all indentures, agreements or other instruments binding upon it or its properties, except where non-compliance, either singly or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

Section 4.7        Investment Company Act, Etc. Neither the Borrower nor any of its Subsidiaries is (a) an “investment company”, as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended or (b) otherwise subject to any other regulatory scheme limiting its ability to incur debt.

Section 4.8        Taxes. The Borrower and its Subsidiaries have timely filed or caused to be filed (or have obtained permitted extensions for) all Federal income tax returns and, to the knowledge of Borrower, have filed or caused to be filed (or have obtained permitted extensions for) all other material tax returns that are required to be filed by them, and have paid all taxes shown to be due and payable on such returns or on any assessments made against it or its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority, except (i) to the extent the failure to do so would not have a Material Adverse Effect or (ii) where the same are currently being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as the case may be, has set aside on its books adequate reserves.

Section 4.9        Margin Regulations. None of the proceeds of any of the Loans or Letters of Credit will be used for “purchasing” or “carrying” any “margin stock” within the respective meanings of each of such terms under Regulation U as now and from time to time hereafter in effect (except in a manner that is permitted by Regulation U) or for any purpose that violates the provisions of Regulation T, U or X promulgated by the Board of Governors of the Federal Reserve System.

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Section 4.10       ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of all such underfunded Plans.

Section 4.11       Ownership of Property.

                (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all of its real and personal property material to the operation of its business.

                (b) Each of the Borrower and its Subsidiaries owns, or is licensed, or otherwise has the right, to use, all material patents, trademarks, service marks, tradenames, copyrights and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe on the rights of any other Person, except for any such infringements that, individually or in the aggregate, would not have a Material Adverse Effect.

Section 4.12       Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments, and corporate or other restrictions to which the Borrower or any of its Subsidiaries is subject, and all other matters known to any of them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither the Information Memorandum (with respect to information contained therein concerning the Borrower and its Subsidiaries) nor any of the reports (including without limitation all reports that the Borrower is required to file with the Securities and Exchange Commission), financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation or syndication of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by any other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in light of the circumstances under which they were made, not misleading; provided, that with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

Section 4.13       Labor Relations. There are no strikes, lockouts or other material labor disputes or grievances against the Borrower or any of its Subsidiaries, or, to the Borrower’s knowledge, threatened against or affecting the Borrower or any of its Subsidiaries, and no significant unfair labor practice charges or grievances are pending against the Borrower or any of its Subsidiaries, or to the Borrower’s knowledge, threatened against any of them before any Governmental Authority, which individually or in the aggregate would result in a Material Adverse Effect. All payments due from the Borrower or any of its Subsidiaries pursuant to the provisions of any collective bargaining agreement have been paid or accrued as a liability on the

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books of the Borrower or any such Subsidiary, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

Section 4.14       Subsidiaries. Schedule 4.14 sets forth the name of, the ownership interest of the Borrower in, the jurisdiction of incorporation of, and the type of, each Subsidiary and identifies each Subsidiary that is a Subsidiary Loan Party, Restricted Subsidiary or Foreign Subsidiary in each case as of the Closing Date.

Section 4.15       Axia Acquisition. As of the Closing Date, (a) the Axia Acquisition has been duly consummated in accordance with the terms and conditions of the Axia Acquisition Documents, without any material waiver or deviation therefrom that has not been previously disclosed to the Administrative Agent in writing, (b) the Borrower directly or indirectly owns 100% of the issued and outstanding capital stock of Axia, and (c) to the Borrower’s knowledge, there has been no event or occurrence with respect to Axia’s financial condition (as reflected on its audited financial statements dated as of December 31, 2005) since such date that would have a Material Adverse Effect.

ARTICLE V

AFFIRMATIVE COVENANTS

The Borrower covenants and agrees that so long as any Lender has a Commitment hereunder or the principal of and interest on any Loan or any fee or any LC Disbursement remains unpaid or any Letter of Credit remains outstanding:

Section 5.1        Financial Statements and Other Information. The Borrower will deliver to the Administrative Agent and each Lender:

(a) as soon as available and in any event within 90 days after the end of each fiscal year of Borrower, a copy of the annual audited report for such fiscal year for the Borrower and its Subsidiaries, containing a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, stockholders’ equity and cash flows (together with all footnotes thereto) of the Borrower and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and reported on by Ernst & Young, LLP or other independent public accountants of nationally recognized standing (without a “going concern” or like qualification, exception or explanation and without any qualification or exception as to scope of such audit) to the effect that such financial statements present fairly in all material respects the financial condition and the results of operations of the Borrower and its Subsidiaries for such fiscal year on a consolidated basis in accordance with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards;

                (b) as soon as available and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, an unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such

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fiscal quarter and the related unaudited consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal quarter and the then elapsed portion of such fiscal year, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of Borrower’s previous fiscal year, all certified by a Responsible Officer or treasurer of the Borrower as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes;

(c) concurrently with the delivery of the financial statements referred to in clauses (a) and (b) above, a certificate of a Responsible Officer, (i) certifying as to whether there exists a Default or Event of Default on the date of such certificate, and if a Default or an Event of Default then exists, specifying the details thereof and the action the Borrower has taken or proposes to take with respect thereto, (ii) setting forth in reasonable detail calculations demonstrating compliance with Article VI and (iii) stating whether any change in GAAP or the application thereof has occurred since the date of the Borrower’s audited financial statements referred to in Section 4.4 and, if any change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;

                (d) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and

(e) promptly following any request therefor, such other information regarding the results of operations, business affairs and financial condition of the Borrower or any Subsidiary as the Administrative Agent or any Lender may reasonably request.

Section 5.2        Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following:

                (a) the occurrence of any Default or Event of Default;

                (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or, to the knowledge of the Borrower, affecting the Borrower or any Subsidiary which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect;

                (c) the occurrence of any event or any other development by which the Borrower or any of its Subsidiaries (i) fails to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) becomes subject to any Environmental Liability, (iii) receives notice of any claim with respect to any Environmental Liability, or (iv) becomes aware of any basis for any Environmental Liability and in each of the preceding clauses, which

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individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect;

(d) the occurrence of any ERISA Event that alone, or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $5,000,000; and

                (e) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a written statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

Section 5.3        Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence and its respective rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business (to the extent a failure to do so would have a Material Adverse Effect) and will continue to engage in substantially the same business as presently conducted or such other businesses that are reasonably related thereto; provided, that nothing in this Section shall prohibit any merger, consolidation, conversion, liquidation or dissolution permitted under Section 7.3.

Section 5.4        Compliance with Laws, Etc. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and requirements of any Governmental Authority applicable to its properties, except where the failure to do so, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

Section 5.5        Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge at or before maturity, all of its obligations and liabilities (including without limitation all tax liabilities and claims that could result in a statutory Lien) before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.

Section 5.6        Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries shall be made of all material dealings and transactions in relation to its business and activities to the extent necessary to prepare the consolidated financial statements of Borrower in conformity with GAAP.

Section 5.7        Visitation, Inspection, Etc. The Borrower will, and will cause each of its Subsidiaries to, permit any representative of the Administrative Agent or any Lender to visit and inspect its properties, to examine its books and records and to make copies and take extracts therefrom, and to discuss its affairs, finances and accounts with any of its officers and with its

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independent certified public accountants, all at such reasonable times and as often as the Administrative Agent or any Lender may reasonably request after reasonable prior notice to the Borrower. During the course of the aforementioned visitations, inspections, examinations and discussions, representatives of the Administrative Agent and the Lenders may encounter individually identifiable healthcare information or other confidential information relating to healthcare patients (collectively, the “Confidential Healthcare Information”). Unless otherwise required by law, the Administrative Agent and any Lender, and their respective representatives, shall not disclose, compile, aggregate, remove from the properties of the Borrower or any of its Subsidiaries or record in any manner any Confidential Healthcare Information, and shall not require the Borrower or any of its Subsidiaries to violate any laws, regulations or ordinances intended to protect the privacy rights of healthcare patients, including, without limitation, the Health Insurance Portability and Accountability Act of 1996, as amended, and the rules and regulations promulgated thereunder.

Section 5.8        Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, except for ordinary wear and tear, if the failure to do so, either individually or it the aggregate, could reasonably be expected to result in a Material Adverse Effect, (b) maintain with financially sound and reputable insurance companies, insurance with respect to its properties and business, and the properties and business of its Subsidiaries, against loss or damage of the kinds customarily insured against by companies in the same or similar businesses operating in the same or similar locations and (c) cause the Administrative Agent to be named as an additional insured on all general liability insurance policies maintained by the Borrower and its Subsidiaries and maintain the lender loss payable endorsement with respect to all property/casualty policies covering Collateral delivered on the Closing Date (or its equivalent). So long as no Event of Default has occurred and is continuing, the Administrative Agent will release to the Borrower (or the applicable Subsidiary) any property/casualty insurance proceeds paid to the Administrative Agent to be used in a manner not prohibited by this Agreement.

Section 5.9        Use of Proceeds and Letters of Credit. The Borrower will use the proceeds of the Revolving Loans to pay a portion of the purchase price as set forth in the Axia Acquisition Documents and the transaction costs related thereto, to refinance the outstanding Indebtedness evidenced by the Prior Facility, to finance working capital needs, to finance Acquisitions permitted by the terms hereof, to finance the repurchase of Borrower’s common stock in accordance with the terms hereof, to finance capital expenditures and for other general corporate purposes of the Borrower and its Subsidiaries. The Borrower will use the proceeds of the Term Loans to pay a portion of the purchase price as set forth in the Axia Acquisition Documents and the transaction costs related thereto. The Borrower will use Letters of Credit for general corporate purposes of the Borrower and its Subsidiaries. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that would violate any rule or regulation of the Board of Governors of the Federal Reserve System, including Regulations T, U or X.

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Section 5.10       Additional Subsidiaries.

(a) If any Domestic Subsidiary is acquired or formed after the Closing Date, the Borrower will, within ten (10) business days after such Domestic Subsidiary is acquired or formed, notify the Administrative Agent thereof and within thirty (30) days thereafter will cause such Domestic Subsidiary to become a Subsidiary Loan Party by executing supplements or joinders to the Subsidiary Guarantee Agreement and the Assignment and Security Agreement, in form and substance reasonably satisfactory to the Administrative Agent, and will cause such Domestic Subsidiary to deliver simultaneously therewith similar documents applicable to a Subsidiary Loan Party required under Section 3.1 as reasonably requested by the Administrative Agent. If a Restricted Subsidiary actively engages in business or acquires assets in excess of $250,000 after the Closing Date, the Borrower will, within ten (10) business days after such Restricted Subsidiary engaged in business or has such assets, notify the Administrative Agent thereof and promptly thereafter (but in no event more than thirty (30) days after such notice) will cause such Restricted Subsidiary to become a Subsidiary Loan Party by executing supplements or joinders to the Subsidiary Guarantee Agreement and the Assignment and Security Agreement, in form and substance reasonably satisfactory to the Administrative Agent, and will cause such Restricted Subsidiary to deliver simultaneously therewith similar documents applicable to a Subsidiary Loan Party required under Section 3.1 as reasonably requested by the Administrative Agent. Such Restricted Subsidiary shall thereafter become a Subsidiary Loan Party for all purposes hereunder.

(b) If a Foreign Subsidiary is acquired or formed after the Closing Date and is owned directly by the Borrower or a Subsidiary Loan Party, the Borrower will, within ten (10) business days after such Foreign Subsidiary is acquired or formed, notify the Administrative Agent thereof, and within thirty (30) days thereafter the Borrower will execute, or will cause such Subsidiary Loan Party to execute, a supplement or joinder to the Pledge Agreement, in form and substance reasonably satisfactory to the Administrative Agent, together with all other documents and certificates necessary to perfect a first priority Lien on the stock or other equity interest of such Foreign Subsidiary pledged under the Pledge Agreement. The Borrower will also, or will also cause such Subsidiary Loan Party to, deliver simultaneously therewith similar documents required under Section 3.1 as reasonably requested by the Administrative Agent. The Pledge Agreement shall create a valid and first priority Lien on 65% of the voting capital stock (or other voting equity interests) and 100% of the non-voting capital stock (or other non-voting equity interests) of such Foreign Subsidiary (or such lesser percentages as may be required to avoid any adverse tax consequences under applicable laws and regulations).

                (c) If a Domestic Subsidiary is acquired or formed after the Closing Date and is owned directly by the Borrower or a Subsidiary Loan Party, the Borrower will, within ten (10) business days after such Domestic Subsidiary is acquired or formed, notify the Administrative Agent thereof, and within thirty (30) days thereafter the Borrower will execute, or will cause such Subsidiary Loan Party to execute, a supplement or joinder to the Pledge Agreement, in form and substance satisfactory to the Administrative Agent, together with all other documents and certificates necessary to perfect a first priority Lien on the stock or other equity interests of such Domestic Subsidiary pledged under the Pledge Agreement. The Borrower will also, or will also cause such Subsidiary Loan

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Party to, deliver simultaneously therewith similar documents required under Section 3.1 as reasonably requested by the Administrative Agent. The Pledge Agreement shall create a valid and first priority Lien on all voting capital stock (or other voting equity interests) and all non-voting capital stock (or other non-voting equity interests) of such Domestic Subsidiary.

Section 5.11       Additional Assets. Within ten (10) days after receipt of written notice from the Administrative Agent, the Borrower and any Subsidiary Loan Party shall execute such security agreements, collateral assignments, deeds of trust, mortgages, pledge agreements, or similar agreements, and take all such necessary steps (including filings and recordings with appropriate governmental offices), all at the Borrower’s expense, as may be reasonably requested by the Administrative Agent to obtain on behalf of the Lenders a Lien against any presently existing or hereafter acquired material asset of the Borrower and each Subsidiary Loan Party.

Section 5.12       Post-Closing Covenant.

(a)           No later than 10 Business Days after the Closing Date, the Borrower shall deliver to the Administrative Agent (i) evidence that the names of Axia and each of its Subsidiaries have been changed in accordance with the terms of the Axia Acquisition Agreement, (ii) stock certificates for Axia and each of its corporate Subsidiaries reflecting the new names, together with undated stock powers executed in blank, and (iii) to the extent requested by the Administrative Agent, revised stock certificates for other Subsidiaries removing or altering restrictive legends in a manner reasonably requested by the Administrative Agent. The Borrower acknowledges that upon receipt of the foregoing, the Administrative Agent is authorized to file amendments to its UCC financing statements reflecting such changes in names.

(b)           No later than January 15, 2007, or such later date to which the Administrative Agent shall agree in writing, Borrower shall deliver to the Administrative Agent amendments to the operating agreements of AXIA My ePhit, LLC and WholeHealthMD.com, LLC, in form and substance reasonably satisfactory to Administrative Agent.

(c)           If and to the extent requested by the Administrative Agent, the Borrower shall use its best efforts to deliver to the Administrative Agent a certificate of an authorized officer of AlignisOne of New Jersey, Inc. (i) attaching and certifying copies of its bylaws and articles of incorporation, (ii) attaching a certificate of good standing or existence from the State of New Jersey Department of Treasury and (iii) certifying the name, title and true signature of each officer of such Loan Party executing the Loan Documents to which it is a party.

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ARTICLE VI

FINANCIAL COVENANTS

The Borrower covenants and agrees that so long as any Lender has a Commitment hereunder or the principal of or interest on or any Loan remains unpaid or any fee or any LC Disbursement remains unpaid or any Letter of Credit remains outstanding:

Section 6.1        Ratio of Consolidated Total Funded Debt to Consolidated EBITDA. As of the end of each fiscal quarter ending during a period specified in the table below, the Borrower and its Subsidiaries shall maintain on a consolidated basis a ratio of Consolidated Total Funded Debt to Consolidated EBITDA that does not exceed the applicable Required Threshold set forth below; provided however, that if during any fiscal quarter the Borrower consummates one or more Acquisitions permitted herein that in the aggregate equals or exceeds $50,000,000, then and in such event the Required Threshold for such fiscal quarter and the following two fiscal quarters shall be increased to the applicable Post-Acquisition Required Threshold set forth below:

Period	Required Threshold	Post-Acquisition Required Threshold
Prior to August 31, 2007	4.00:1.00		4.50:1.00
August 31, 2007 – May 31, 2008	3.75:1.00		4.25:1.00
August 31, 2008 – May 31, 2009	3.50:1.00		4.00:1.00
August 31, 2009 and thereafter	3.00:1.00		3.50:1.00

The Borrower’s compliance with this requirement shall be calculated on a rolling four-quarter basis, measured on the last day of each fiscal quarter. Consolidated EBITDA shall include the Consolidated EBITDA on a Pro Forma Basis of the Person(s) acquired in such Acquisition(s) (including but not limited to Axia), subsequent to the date(s) of such Acquisition(s) for a period not to exceed four fiscal quarters so long as the calculation thereof is done in a manner reasonably calculated to be consistent with GAAP and such calculation is set forth in the supporting calculations to a covenant compliance certificate as detailed and measured to the Administrative Agent’s reasonable satisfaction.

Section 6.2        Fixed Charge Coverage Ratio. The Borrower will have as of the end of each fiscal quarter of the Borrower, a Fixed Charge Coverage Ratio of at least 1.50 to 1.0. Borrower’s compliance with this ratio shall be measured at the end of each fiscal quarter of Borrower, and calculated for such quarter and the three preceding fiscal quarters taken as a whole. In calculating the Fixed Charge Coverage Ratio, Consolidated EBITDA shall include the Consolidated EBITDA on a Pro Forma Basis of the Persons(s) acquired in such Acquisition(s) (including but not limited to Axia) subsequent to the date(s) of such Acquisition(s) for a period not to exceed four fiscal quarters so long as the calculation thereof is done in a manner reasonably calculated to be consistent with GAAP and such calculation is set forth in the supporting calculations to a covenant compliance certificate as detailed and measured to the Administrative Agent’s reasonable satisfaction.

Section 6.3        Consolidated Net Worth. The Borrower will not permit its Consolidated Net Worth at any time to be less than an amount equal to $163,897,000, plus 75% of positive Consolidated Net Income on a cumulative basis for all fiscal quarters of the Borrower commencing with the fiscal quarter ending on November 30, 2005 (provided, that if

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Consolidated Net Income is negative in any fiscal quarter the amount added for such fiscal quarter shall be zero and such negative Consolidated Net Income shall not reduce the amount of Consolidated Net Income added from any previous fiscal quarter), plus 100% of the amount by which the Borrower’s “total stockholders’ equity” is increased as a result of any public or private equity offering of equity securities by the Borrower after the Closing Date (and promptly upon the completion of such offering, the Borrower shall notify the Administrative Agent in writing of the amount of such increase in “total stockholders’ equity”).

ARTICLE VII

NEGATIVE COVENANTS

The Borrower covenants and agrees that so long as any Lender has a Commitment hereunder or the principal of or interest on any Loan remains unpaid or any fee or any LC Disbursement remains unpaid or any Letter of Credit remains outstanding:

Section 7.1        Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness, except: 

                (a) Indebtedness created pursuant to the Loan Documents;

(b) Indebtedness existing on the date hereof and set forth on Schedule 7.1 and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof (immediately prior to giving effect to such extension, renewal or replacement) or shorten the maturity or the weighted average life thereof;

                (c) Indebtedness of the Borrower owing to any Domestic Subsidiary and of any Domestic Subsidiary owing to the Borrower or any other Domestic Subsidiary;

(d) Indebtedness in respect of obligations under Hedging Agreements permitted by Section 7.10;

                (e) other unsecured Indebtedness of Loan Parties in an aggregate principal amount not to exceed $10,000,000 at any time outstanding;

                (f) Capital Lease Obligations and secured purchase money indebtedness of Loan Parties not in excess of $40,000,000 in the aggregate at any time;

(g) Indebtedness (secured or unsecured) of Foreign Subsidiaries in an aggregate principal amount not to exceed the equivalent of $15,000,000 at any time outstanding, provided, however, that no change in currency exchange rates subsequent to an incurrence of Indebtedness permitted by this provision shall result in a violation of this provision;

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                (h) Indebtedness consisting of any Guarantee by the Borrower or any Subsidiary of the Indebtedness of a Foreign Subsidiary allowable under subsection (g) of this Section;

(i) Indebtedness of a Foreign Subsidiary to the Borrower or a Domestic Subsidiary, subject to the limitation in Section 7.4(g); and

                (j) Permitted Subordinated Debt.

Section 7.2        Negative Pledge. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien on any of their respective assets or property now owned or hereafter acquired or, except:

                (a) Liens created in favor of the Administrative Agent for the benefit of the Lenders pursuant to the Loan Documents;

                (b) Permitted Encumbrances;

(c) a Lien securing a Hedging Agreement in favor of a Person who was a Lender or an Affiliate of a Lender as of the date of such Hedging Agreement, entered into in connection with interest rate risks with respect to this Agreement, which ranks pari passu with the Security Documents; 

(d) any Liens on any property or asset of the Borrower or any Subsidiary existing on the Closing Date set forth on Schedule 7.2; provided, that such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary;

(e) purchase money Liens upon or in any fixed or capital assets to secure the purchase price or the cost of such fixed or capital assets or to secure Indebtedness allowable under Section 7.1 incurred solely for the purpose of financing the acquisition of such fixed or capital assets (including Liens securing any Capital Lease Obligations); provided, that (i) such Lien secures Indebtedness permitted by Section 7.1(f), (ii) such Lien attaches to such asset concurrently or within 90 days after the acquisition thereof; (iii) such Lien does not extend to any other asset; and (iv) the Indebtedness secured thereby does not exceed the cost of acquiring such fixed or capital assets;

(f) any Lien (i) existing on any asset of any Person at the time such Person becomes a Subsidiary of the Borrower, (ii) existing on any asset of any Person at the time such Person is merged with or into the Borrower or any Subsidiary of the Borrower or (iii) existing on any asset prior to the acquisition thereof by the Borrower or any Subsidiary of the Borrower; provided, that any such Lien was not created in the contemplation of any of the foregoing and any such Lien secures only those obligations which it secures on the date that such Person becomes a Subsidiary or the date of such merger or the date of such acquisition;

                (g) any Lien on the assets of a Foreign Subsidiary securing Indebtedness of a Foreign Subsidiary allowable under Section 7.1(g); and

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(h) extensions, renewals, or replacements of any Lien referred to in paragraphs (a) through (g) of this Section; provided, that the principal amount of the Indebtedness secured thereby is not increased and that any such extension, renewal or replacement is limited to the assets originally encumbered thereby.

Section 7.3        Fundamental Changes.

(a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate into any other Person, or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) all or substantially all of its assets (in each case, whether now owned or hereafter acquired) or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired) or liquidate or dissolve; provided, that if at the time thereof and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing (i) the Borrower or any Subsidiary may merge with a Person if the Borrower (or such Subsidiary if the Borrower is not a party to such merger) is the surviving Person or if the surviving Person is a Domestic Subsidiary thereafter and complies with Section 5.10, (ii) any Subsidiary may merge into another Subsidiary; provided that a Domestic Subsidiary may not merge into a Foreign Subsidiary; and provided that if any party to such merger is a Subsidiary Loan Party, a Subsidiary Loan Party shall be the surviving Person, (iii) a Foreign Subsidiary may merge into another Foreign Subsidiary, (iv) any Subsidiary may be converted into a limited liability company if it complies with the provisions of Section 5.10, to the extent applicable, (v) any Subsidiary may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to the Borrower or to a Subsidiary Loan Party and (vi) any Subsidiary (other than a Subsidiary Loan Party) may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided, that any such merger involving a Person that is not a wholly-owned Subsidiary immediately prior to such merger shall not be permitted unless the corresponding Investment (as defined in Section 7.4), if any, is also permitted by Section 7.4.

                (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date hereof and businesses reasonably related thereto.

Section 7.4        Investments, Loans, Etc. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly-owned Subsidiary prior to such merger), any common stock, evidence of indebtedness or other securities (including any option, warrant, or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person (all of the foregoing being collectively called “Investments”), or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person that constitute a business unit, except: 

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(a) Investments (other than Permitted Investments) existing on the date hereof and set forth on Schedule 7.4 (including Investments in Domestic Subsidiaries);

                (b) Permitted Investments;

(c) Guarantees constituting Indebtedness permitted by Section 7.1;

                (d) loans or advances to employees, officers or directors of the Borrower or any Subsidiary in the ordinary course of business for travel, relocation and related expenses;

                (e) Investments made by the Borrower in or to any Domestic Subsidiary and by any Domestic Subsidiary in or to the Borrower or another Domestic Subsidiary;

                (f) Investments by Foreign Subsidiaries that are held or made outside the United States of the same or similar quality as Permitted Investments and Investments by a Foreign Subsidiary in another Foreign Subsidiary;

(g) Investments by the Borrower or any Domestic Subsidiary in any Foreign Subsidiaries in an aggregate principal amount not to exceed $40,000,000 at any time outstanding; 

(h) Hedging Agreements permitted by Section 7.10;

(i) Investments described in Section 7.5(iii); and

(j) Investments consisting of the Acquisition of assets of or equity interests in third parties provided (i) such Acquisition is in the same line of business or supports the primary business activities of Borrower and its Subsidiaries or is a business reasonably related to the business that Borrower and its Subsidiaries were engaged in on the Closing Date; (ii) after giving effect to the Acquisition, the Borrower would have been in compliance with Section 6.1 (calculated on a Pro Forma Basis taking into account such Acquisition) measured as of the last day of the most recently ended fiscal quarter of the Borrower for which the Borrower has delivered financial statements to the Administrative Agent hereunder; (iii) no Default or Event of Default exists or would exist taking into account such Acquisition; and (iv) if the consideration for one or more Acquisitions exceeds in the aggregate $50,000,000 in any fiscal quarter, the Administrative Agent has received, prior to consummation of the Acquisition that causes such amount to be exceeded, a Pro Forma Compliance Certificate demonstrating compliance with Section 6.1.

Notwithstanding any provisions in this Section to the contrary, the Borrower will not, and will not permit its Subsidiaries to, make Investments in a Restricted Subsidiary after the date of this Agreement.

Section 7.5        Restricted Payments. The Borrower will not, and will not permit its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any dividend on any class of its stock, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement, defeasance or other acquisition

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of, any shares of common stock or Indebtedness subordinated to the Obligations of the Borrower or any options, warrants, or other rights to purchase such common stock or such Indebtedness, whether now or hereafter outstanding (each, a “Restricted Payment”), except for (i) dividends payable by the Borrower solely in shares of any class of its common stock, (ii) Restricted Payments made by any Subsidiary ratably to the Borrower, any other Subsidiaries of the Borrower and any other minority shareholders of a Subsidiary of Borrower, and (iii) redemptions and other purchases of the capital stock of the Borrower for cash; provided, that (a) no Default or Event of Default has occurred and is continuing at the time such dividend is paid or such redemption or purchase is made, and (b) no more than $50,000,000 in the aggregate is paid for redemption or purchase of the Borrower’s stock during the term hereof. Notwithstanding any provisions in this Section to the contrary, the Borrower will not, and will not permit its Subsidiaries to, make a Restricted Payment to a Restricted Subsidiary and the Borrower will not, and will not permit its Domestic Subsidiaries to, make a Restricted Payment to a Foreign Subsidiary except as an Investment permitted under Section 7.4 (g).

Section 7.6        Sale of Assets. The Borrower will not, and will not permit any of its Subsidiaries to, convey, sell, lease, assign, transfer or otherwise dispose of, any of its assets, business or property, whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary’s common stock, to any Person other than the Borrower or a Subsidiary Loan Party, except:

                (a) the sale or other disposition for fair market value of obsolete or worn-out property or other property not necessary for operations disposed of in the ordinary course of business;

                (b) the sale of inventory and Permitted Investments, and the licensing of intangible property, in the ordinary course of business;

(c) the sale or other disposition of assets in a transaction permitted under Section 7.3(a); and

                (d) other sales or Dispositions of assets with a fair market value that does not exceed in the aggregate $10,000,000 in any four fiscal quarter period.

Section 7.7        Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties, (b) transactions between or among the Borrower and its Subsidiaries not involving any other Affiliates, and which are not prohibited by Section 7.4 and (c) any Restricted Payment permitted by Section 7.5.

Section 7.8        Restrictive Agreements. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit any Lien upon any of its assets or properties, whether now

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owned or hereafter acquired, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to its common stock, to make or repay loans or advances to the Borrower or any other Subsidiary, to Guarantee Indebtedness of the Borrower or any other Subsidiary or to transfer any of its property or assets to the Borrower or any Subsidiary of the Borrower; provided, that (i) the foregoing shall not apply to restrictions or conditions imposed by law or by this Agreement or any other Loan Document, (ii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is sold and such sale is permitted hereunder, (iii) clause (a) shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions and conditions apply only to the property or assets securing such Indebtedness and (iv) clause (a) shall not apply to customary provisions in real property or equipment leases restricting the assignment thereof.

Section 7.9        Sale and Leaseback Transactions. The Borrower will not, and will not permit any of the Subsidiaries to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereinafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred.

Section 7.10       Hedging Agreements. The Borrower will not, and will not permit any of its Domestic Subsidiaries to, enter into any Hedging Agreement other than a Hedging Agreement entered into by such Person for the purpose of mitigating existing or anticipated risks of such Person associated with liabilities, obligations, commitments, investments, assets or property of such Person (including changes in the value of foreign currencies held by such Person), and not for purposes of speculation.

Section 7.11       Status of Incorporation and Formation. Except in a transaction permitted by Section 7.3(a), the Borrower will not permit any Subsidiary Loan Party to change its state of incorporation or formation without giving thirty (30) days’ prior written notice to the Administrative Agent.

Section 7.12       Accounting Changes. Subject to Section 1.3, the Borrower will not, and will not permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Borrower or of any Subsidiary, except to change the fiscal year of a Subsidiary to conform its fiscal year to that of the Borrower.

Section 7.13        Permitted Subordinated Debt.

                (a) The Borrower will not, and will not permit any of its Subsidiaries to (i) prepay, redeem, repurchase or otherwise acquire for value any Permitted Subordinated Debt, or (ii) make any principal, interest or other payments on any Permitted Subordinated Debt that is not expressly permitted by the subordination provisions of the Subordinated Debt Documents.

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                (b) The Borrower will not, and will not permit any of its Subsidiaries to, agree to or permit any amendment, modification or waiver of any provision of any Subordinated Debt Document if the effect of such amendment, modification or waiver is to (i) increase the interest rate on such Permitted Subordinated Debt or change (to earlier dates) the dates upon which principal and interest are due thereon; (ii) alter the redemption, prepayment or subordination provisions thereof in a manner adverse to the Administrative Agent or the Lenders; (iii) alter the covenants and events of default in a manner that would make such provisions more onerous or restrictive to the Borrower or any such Subsidiary; or (iv) otherwise increase the obligations of the Borrower or any Subsidiary in respect of such Permitted Subordinated Debt or confer additional rights upon the holders thereof which individually or in the aggregate would be materially adverse to the Borrower or any of its Subsidiaries or to the Administrative Agent or the Lenders.

ARTICLE VIII

EVENTS OF DEFAULT

Section 8.1        Events of Default. If any of the following events (each an “Event of Default”) shall occur:

                (a) the Borrower shall fail to pay any principal of any Loan or of any reimbursement obligation in respect of any LC Disbursement on the date such payment became due and payable, whether at the due date thereof or at a date fixed for prepayment or otherwise; or

                (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount payable under clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three days; or

                (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any other Loan Document (including the Schedules attached thereto) and any amendments or modifications hereof or waivers hereunder, or in any certificate, report, financial statement or other document submitted to the Administrative Agent or the Lenders by any Loan Party or any representative of any Loan Party pursuant to or in connection with this Agreement or any other Loan Document shall prove to be incorrect in any material respect when made or deemed made or submitted; or

(d) the Borrower shall fail to observe or perform any covenant or agreement contained in Section 5.2, Section 5.3 (with respect to the Borrower’s existence) or Articles VI or VII; or

                (e) any Loan Party shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those referred to in clauses (a), (b) and (d) above), and such failure shall remain unremedied for 30 days after the earlier of (i) any

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Responsible Officer of the Borrower becomes aware of such failure, or (ii) written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender; or

                (f) the Borrower or any Subsidiary (whether as primary obligor or as guarantor or other surety) shall fail to pay any principal of or premium or interest on any Material Indebtedness that is outstanding, when and as the same shall become due and payable (whether at scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument evidencing such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable; or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or any offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or

                (g) the Borrower or any Subsidiary shall (i) commence a voluntary case or other proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a custodian, trustee, receiver, liquidator or other similar official of it or any substantial part of its property, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (i) of this Section, (iii) apply for or consent to the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any such Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing; or

                (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or any substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or (ii) the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and in any such case, such proceeding or petition shall remain undismissed for a period of 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or

                (i) the Borrower or any Subsidiary shall become unable to pay, shall admit in writing its inability to pay, or shall fail to pay, its debts generally as they become due; or

                (j) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with other ERISA Events that have occurred, could

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reasonably be expected to result in liability to the Borrower and the Subsidiaries in an aggregate amount exceeding $5,000,000; or

                (k) any judgment or order for the payment of money in excess of $10,000,000 in the aggregate shall be rendered against the Borrower or any Subsidiary, and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

                (l) any non-monetary judgment or order shall be rendered against the Borrower or any Subsidiary that could reasonably be expected to have a Material Adverse Effect, and there shall be a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

                (m) a Change in Control shall occur or exist; or

                (n) any provision of the Subsidiary Guarantee Agreement or any Security Document shall for any reason cease to be valid and binding on, or enforceable against, any Subsidiary Loan Party, or any Subsidiary Loan Party shall so state in writing, or any Subsidiary Loan Party shall seek to terminate its liability under the Subsidiary Guarantee Agreement; or

                (o) a default shall exist under the Subsidiary Guarantee Agreement or any Security Document, subject to any cure periods or grace periods therein; or

                (p) an Event of Default shall exist under any other agreements evidencing Indebtedness owed to any of the Lenders or under any Hedging Agreement executed with any of the Lenders or any Affiliate of a Lender (taking into account any applicable notice and cure or grace period provisions thereof);

then, and in every such event (other than an event with respect to the Borrower described in clause (g) or (h) of this Section) and at any time thereafter during the continuance of such event, the Administrative Agent may, and upon the written request of the Required Lenders shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitments, whereupon the Commitment of each Lender shall terminate immediately; (ii) declare the principal of and any accrued interest on the Loans, and all other Obligations owing hereunder, to be, whereupon the same shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and (iii) exercise all remedies contained in any other Loan Document; and if an Event of Default specified in either clause (g) or (h) shall occur, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon, and all fees, and all other Obligations shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

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Section 8.2        Application of Proceeds from Collateral. All proceeds from each sale of, or other realization upon, all or any part of the Collateral by the Administrative Agent or any of the Lenders that occurs after the principal of and any accrued interest on the Loans, and all other Obligations owing hereunder, have been declared, or deemed to be, due and payable immediately pursuant to the last paragraph of Section 8.1 or after the Administrative Agent forecloses on any of the Collateral, shall be applied as follows:

first, to the reimbursable expenses of the Administrative Agent incurred in connection with such sale or other realization upon the Collateral and due and payable pursuant to any of the Loan Documents, until the same shall have been paid in full;

second, to the fees and other reimbursable expenses of the Administrative Agent and the Issuing Bank then due and payable pursuant to any of the Loan Documents, until the same shall have been paid in full;

third, to all reimbursable expenses, if any, of the Lenders then due and payable pursuant to any of the Loan Documents, until the same shall have been paid in full;

fourth, to the fees due and payable under Section 2.15(b) and (c) and interest then due and payable under the terms hereof, until the same shall have been paid in full;

fifth, to the aggregate outstanding principal amount of the Loans, the LC Exposure and the Hedge/Cash Management Exposure of the Borrower and its Subsidiaries, to the extent secured pursuant to the Loan Documents, until the same shall have been paid in full, allocated pro rata among the Lenders and any Affiliates of Lenders that hold such Obligations based on their respective pro rata shares of the aggregate amount of such Obligations;

sixth, to additional cash collateral for the aggregate amount of all outstanding Letters of Credit until the aggregate amount of all cash collateral held by the Administrative Agent pursuant to this Agreement is equal to 102% of the LC Exposure after giving effect to the foregoing clause fifth; and

seventh, to the extent any proceeds remain, to the Borrower or any other Loan Party entitled thereto.

All amounts allocated pursuant to the foregoing clauses third through fifth to the Lenders as a result of amounts owed to the Lenders under the Loan Documents shall be allocated among, and distributed to, the Lenders pro rata based on their respective Pro Rata Shares; provided, however, that all amounts allocated to that portion of the LC Exposure comprised of the aggregate undrawn amount of all outstanding Letters of Credit pursuant to clause fifth and sixth shall be distributed to the Administrative Agent, rather than to the Lenders, and held by the Administrative Agent in an account in the name of the Administrative Agent for the benefit of the Issuing Bank and the Lenders as cash collateral for the LC Exposure, such account to be administered in accordance with Section 2.24(g).

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ARTICLE IX

THE ADMINISTRATIVE AGENT

Section 9.1         Appointment of Administrative Agent.

                (a) Each Lender irrevocably appoints SunTrust Bank as the Administrative Agent and authorizes it to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent under this Agreement and the other Loan Documents, together with all such actions and powers that are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder or under the other Loan Documents by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions set forth in this Article shall apply to any such sub-agent and the Related Parties of the Administrative Agent and any such sub-agent and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

(b) The Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith until such time and except for so long as the Administrative Agent may agree at the request of the Required Lenders to act for the Issuing Bank with respect thereto; provided, that the Issuing Bank shall have all the benefits and immunities (i) provided to the Administrative Agent in this Article IX with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as the term “Administrative Agent” as used in this Article IX included the Issuing Bank with respect to such acts or omissions and (ii) as additionally provided in this Agreement with respect to the Issuing Bank.

Section 9.2        Nature of Duties of Administrative Agent. The Administrative Agent shall not have any duties or obligations except those expressly set forth in this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except those discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.2), and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.2) or in the

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absence of its own gross negligence or willful misconduct. The Administrative Agent shall not be deemed to have knowledge of any Default or Event of Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or any Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements, or other terms and conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article III or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

Section 9.3        Lack of Reliance on the Administrative Agent. Each of the Lenders, the Swingline Lender and the Issuing Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders, the Swingline Lender and the Issuing Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, continue to make its own decisions in taking or not taking of any action under or based on this Agreement, any related agreement or any document furnished hereunder or thereunder.

Section 9.4        Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Lenders with respect to any action or actions (including the failure to act) in connection with this Agreement, the Administrative Agent shall be entitled to refrain from such act or taking such act, unless and until it shall have received instructions from such Lenders; and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders where required by the terms of this Agreement.

Section 9.5        Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed, sent or made by the proper Person. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or not taken by it in accordance with the advice of such counsel, accountants or experts.

              Section 9.6        The Administrative Agent in its Individual Capacity. The bank serving as the Administrative Agent shall have the same rights and powers under this Agreement and any other Loan Document in its capacity as a Lender as any other Lender and may exercise or refrain from exercising the same as though it were not the Administrative Agent; and the terms

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“Lenders”, “Required Lenders”, “holders of notes”, or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The bank acting as the Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if it were not the Administrative Agent hereunder.

Section 9.7        Successor Administrative Agent.

                (a) The Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, subject to the approval by the Borrower provided that no Default or Event of Default shall exist at such time. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or any state thereof or a bank which maintains an office in the United States, having a combined capital and surplus of at least $500,000,000.

(b) Upon the acceptance of its appointment as the Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. If within 45 days after written notice is given of the retiring Administrative Agent’s resignation under this Section no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45^th day (i) the retiring Administrative Agent’s resignation shall become effective, (ii) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time as the Required Lenders appoint a successor Administrative Agent as provided above. After any retiring Administrative Agent’s resignation hereunder, the provisions of this Article IX shall continue in effect for the benefit of such retiring Administrative Agent and its representatives and agents in respect of any actions taken or not taken by any of them while it was serving as the Administrative Agent.

Section 9.8        Authorization to Execute other Loan Documents. Each Lender hereby authorizes the Administrative Agent to execute on behalf of all Lenders all Loan Documents other than this Agreement.

Section 9.9        Documentation Agent; Syndication Agent. Each Lender hereby designates U.S. Bank National Association and Regions Bank as Co-Documentation Agents and agrees that the Co-Documentation Agents shall have no duties or obligations as such to any Lender or any Loan Party under any Loan Documents. Each Lender hereby designates JPMorgan Chase Bank, N.A. and Fifth Third Bank, N.A. as Co-Syndication Agents and agrees

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that the Co-Syndication Agents shall have no duties or obligations as such to any Lender or any Loan Party under any Loan Documents.

ARTICLE X

MISCELLANEOUS

Section 10.1          Notices.

                (a) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

To the Borrower:	Healthways, Inc.
	3841 Green Hills Village Drive
	Nashville, Tennessee 37215
	Attention: Alfred Lumsdaine, Senior Vice President, Chief Accounting Officer and Controller
	Facsimile Number: (615) 665-7715
To the Administrative Agent:	SunTrust Bank
	303 Peachtree Street, N. E./ 25th Floor
	Atlanta, Georgia 30308
	Attention: Agency Services
	Facsimile Number: (404) 724-3879
With a copy to:	SunTrust Bank
	201 Fourth Avenue North
	P.O. Box 305110
	Mail Code: TN Nashville 1907
	Nashville, Tennessee 37230-5110
	Attention: Audrey Soskin,
	Portfolio Manager
	Facsimile Number: (615) 748-5117
To the Issuing Bank:	SunTrust Bank
	25 Park Place, N.E.
	Mail Code: 3706
	Atlanta, Georgia 30303
	Attention: Jon Conley
	Facsimile Number: (404) 588-8129

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To the Swingline Lender:	SunTrust Capital Markets, Inc.
	303 Peachtree Street, N. E./ 25th Floor
	Atlanta, Georgia 30308
	Attention: Agency Services
	Facsimile Number: (404) 724-3879
To any other Lender:	the address set forth in the Administrative Questionnaire or the Assignment and Acceptance executed by such Lender

Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All such notices and other communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the mails or if delivered, upon delivery; provided, that notices delivered to the Administrative Agent, the Issuing Bank or the Swingline Lender shall not be effective until actually received by such Person at its address specified in this Section.

                (b) Any agreement of the Administrative Agent and the Lenders herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Administrative Agent and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Administrative Agent and Lenders shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Administrative Agent or the Lenders in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Administrative Agent and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent and the Lenders of a confirmation which is at variance with the terms understood by the Administrative Agent and the Lenders to be contained in any such telephonic or facsimile notice.

(c) Notices and other communications to the Administrative Agent, the Lenders and the Issuing Bank hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites). Without limiting the foregoing, such notices and other communications shall be deemed to have been delivered when the Borrower provides notice to the Administrative Agent by e-mail that such materials are posted on the website of the Securities and Exchange Commission at www.sec.gov or on another website accessible to the Administrative Agent. The Borrower agrees that the Administrative Agent may make such materials, as well as any other written information, documents, instruments and other material relating to the Borrower or any of its Subsidiaries or any other materials or matters relating to this Agreement or any of the transactions contemplated hereby, available to the Lenders by posting such notices on Intralinks or a substantially similar electronic system. The foregoing shall not apply to notices under Section 5.2 nor shall the foregoing apply to notices to any Lender or the Issuing Bank pursuant to Article II if such Lender or the

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Issuing Bank, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication.

Section 10.2          Waiver; Amendments.

(a) No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder or any other Loan Document, and no course of dealing between the Borrower and the Administrative Agent or any Lender, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power hereunder or thereunder. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or the issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default or Event of Default at the time.

(b) No amendment or waiver of any provision of this Agreement or the other Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Required Lenders or the Borrower and the Administrative Agent with the consent of the Required Lenders and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment or waiver shall: (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the date fixed for any payment of any principal of, or interest on, any Loan or LC Disbursement or interest thereon or any fees hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination or reduction of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.22(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section or the definition of “Required Lenders”, “Required Revolving Lenders” or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender; (vi) release any guarantor or limit the liability of any such guarantor under any guaranty agreement without the written consent of each Lender; (vii) release all or substantially all collateral (if any) securing any of the Obligations without the written consent of each Lender or (viii) amend, waive or change the allocation of prepayments set forth in Section 2.13(e) or Section 8.2 without the

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consent of the holders of more than 50% of the aggregate outstanding Term Loans and the Required Revolving Lenders; provided further, that no such agreement shall amend, modify or otherwise affect the rights, duties or obligations of the Administrative Agent, the Swingline Lender or the Issuing Bank without the prior written consent of such Person. Notwithstanding anything contained herein to the contrary, this Agreement may be amended and restated without the consent of any Lender (but with the consent of the Borrower and the Administrative Agent) if, upon giving effect to such amendment and restatement, such Lender shall no longer be a party to this Agreement (as so amended and restated), the Commitments of such Lender shall have terminated (but such Lender shall continue to be entitled to the benefits of Sections 2.19, 2.20, 2.21 and 10.3), such Lender shall have no other commitment or other obligation hereunder and shall have been paid in full all principal, interest and other amounts owing to it or accrued for its account under this Agreement.

Section 10.3          Expenses; Indemnification.

(a) The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and its Affiliates, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel) incurred by the Administrative Agent, the Issuing Bank or any Lender (provided that the Borrower shall not be obligated to pay fees and expenses for more than one counsel, other than special local counsel, for the Lenders) in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or any Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

(b) The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the Issuing Bank, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the reasonable fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all reasonable fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or

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thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.

                (c) The Borrower shall pay, and hold the Administrative Agent and each of the Lenders harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Agreement and any other Loan Documents, any collateral described therein, or any payments due thereunder, and save the Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes.

(d) To the extent that the Borrower fails to pay any amount required to be paid to the Administrative Agent, the Issuing Bank or the Swingline Lender under clauses (a), (b) or (c) hereof, each Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be, such Lender’s Pro Rata Share (determined as of the time that the unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided, that the unreimbursed expense or indemnified payment, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Issuing Bank or the Swingline Lender in its capacity as such.

                (e) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated therein, any Loan or any Letter of Credit or the use of proceeds thereof.

                (f) All amounts due under this Section shall be payable promptly after written demand therefor.

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Section 10.4          Successors and Assigns.

                (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void).

(b) Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of its Commitment and the Loans and LC Exposure at the time owing to it); provided, that (i) except in the case of (x) an assignment to a Lender or an Affiliate of a Lender or (y) an assignment of a Term Loan to an Approved Fund, each of the Borrower and the Administrative Agent must give their prior written consent (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund or an assignment of the entire amount of the assigning Lender’s Commitment or Loan hereunder or an assignment while an Event of Default has occurred and is continuing, the amount of the Commitment or Loan of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $1,000,000 (unless the Borrower and the Administrative Agent shall otherwise consent), (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement and the other Loan Documents, (iv) the assigning Lender and the assignee shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee payable by the assigning Lender or the assignee (as determined between such Persons) in an amount equal to $3,500 (unless waived by the Administrative Agent) and (v) such assignee, if it is not a Lender, shall deliver a duly completed Administrative Questionnaire to the Administrative Agent; provided, that any consent of the Borrower otherwise required hereunder shall not be required in connection with the initial syndication of the Loans or if an Event of Default has occurred and is continuing. Upon the execution and delivery of the Assignment and Acceptance and payment by such assignee to the assigning Lender of an amount equal to the purchase price agreed between such Persons, such assignee shall become a party to this Agreement and any other Loan Documents to which such assigning Lender is a party and, to the extent of such interest assigned by such Assignment and Acceptance, shall have the rights and obligations of a Lender under this Agreement, and the assigning Lender shall be released from its obligations hereunder to a corresponding extent (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.19, 2.20, 2.21 and 10.3. Upon the consummation of any such assignment hereunder, the assigning Lender, the Administrative Agent and the Borrower shall make appropriate arrangements to have new notes issued if so requested by either or both the assigning Lender or the assignee. Any assignment or other transfer by a Lender that does not fully comply with the terms of this clause (b) shall be treated for purposes of this Agreement as a sale of a participation pursuant to clause (c) below.

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Contemporaneous assignments by or to related Approved Funds shall be treated as a single assignment for purposes of the minimum assignment amount and processing fees provided in this subsection.

(c) Any Lender may at any time, without the consent of the Borrower, the Administrative Agent, the Issuing Bank or the Swingline Lender, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment, the Loans owing to it and its LC Exposure); provided, that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of its obligations hereunder, and (iii) the Borrower, the Administrative Agent, the Swingline Lender, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement and the other Loan Documents. Any agreement between such Lender and the Participant with respect to such participation shall provide that such Lender shall retain the sole right and responsibility to enforce this Agreement and the other Loan Documents and the sole right to approve any amendment, modification, consent or waiver regarding this Agreement and the other Loan Documents; provided, that such participation agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification, consent or waiver regarding this Agreement described in the first proviso of Section 10.2(b) that affects the Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.19, 2.20 and 2.21 to the same extent as if it were a Lender hereunder and had acquired its interest by assignment pursuant to paragraph (b); provided, that no Participant shall be entitled to receive any greater payment under Sections 2.19, 2.20 and 2.21 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant unless the sale of such participation is made with the Borrower’s prior written consent. To the extent permitted by law, the Borrower agrees that each Participant shall be entitled to the benefits of Section 2.22 as though it were a Lender, provided, that such Participant agrees to share with the Lenders the proceeds thereof in accordance with Section 2.22 as fully as if it were a Lender hereunder, further provided that no Participant shall be entitled to receive any greater payment under Section 2.22 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant unless the sale of such participation is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.21 unless the Borrower is notified of such participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.21(e) as though it were a Lender hereunder.

(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement and its notes (if any) to secure its obligations to a Federal Reserve Bank without complying with this Section; provided, that no such pledge or assignment shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. Further, and notwithstanding anything to the contrary contained herein, any Lender that is a Fund may create a security interest in all or any portion of the Loans owing to it and the related

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notes, if any, held by it to the trustee for holders of obligations owed by such Fund or to other holders of obligations owed, or securities issued, by such Fund as security for such obligations or securities; provided that unless and until such trustee or holder actually becomes a Lender in compliance with the other provisions of clause (b) of this Section, (i) no such pledge shall release the pledging Lender from any of its obligations under the Loan Documents, (ii) such trustee or holder shall not be entitled to exercise any of the rights of a Lender under the Loan Documents even though such trustee or holder may have acquired ownership rights with respect to the pledged interest through foreclosure or otherwise (unless such trustee or holder has complied with the requirements of clause (b) of this Section).

(e) Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle (an “SPV”), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided, that (i) nothing herein shall constitute a commitment by any SPV to make any Loan and (ii) if an SPV elects not to exercise such option or otherwise fails to provide all or any part of any Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPV hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPV shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPV, it will not institute against, or join any other person in instituting against, such SPV any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State. Notwithstanding anything to the contrary in this Section, any SPV may (i) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrower and the Administrative Agent) providing liquidity and/or credit support to or for the account of such SPV to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPV. As this Section 10.4(e) applies to any particular SPV, this Section may not be amended without the written consent of such SPV.

(f) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in Atlanta, Georgia a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans and Revolving Credit Exposure owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). Information contained in the Register with respect to

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any Lender shall be available for inspection by such Lender at any reasonable time and from time to time upon reasonable prior notice; information contained in the Register shall also be available for inspection by the Borrower at any reasonable time and from time to time upon reasonable prior notice. The entries in the Register shall be presumed correct, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. In establishing and maintaining the Register, the Administrative Agent shall serve as the Borrower’s agent solely for tax purposes and solely with respect to the actions described in this Section 10.4(f), and the Borrower hereby agrees that, to the extent SunTrust Bank serves in such capacity, SunTrust Bank and its officers, directors, employees, agents, sub-agents and affiliates shall constitute “Indemnitees.”

Section 10.5          Governing Law; Jurisdiction; Consent to Service of Process.

                (a) In accordance with Sections 5-1401 and 5-1402 of the New York General Obligations Law, this Agreement and the other Loan Documents shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of New York.

                (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of the United States District Court of the Southern District of New York, and of the Supreme Court of the State of New York sitting in New York County and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York court or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding that is not subject to further appeal shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction.

                (c) The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (b) of this Section and brought in any court referred to in paragraph (b) of this Section. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 10.1. Nothing in this Agreement or in any

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other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law.

              Section 10.6         WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

              Section 10.7        Right of Setoff. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, each Lender and the Issuing Bank shall have the right, at any time or from time to time upon the occurrence and during the continuance of an Event of Default, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final) of the Borrower at any time held or other obligations at any time owing by such Lender and the Issuing Bank to or for the credit or the account of the Borrower against any and all Obligations held by such Lender or the Issuing Bank, as the case may be, irrespective of whether such Lender or the Issuing Bank shall have made demand hereunder and although such Obligations may be unmatured. Each Lender and the Issuing Bank agree promptly to notify the Administrative Agent and the Borrower after any such set-off and any application made by such Lender and the Issuing Bank, as the case may be; provided, that the failure to give such notice shall not affect the validity of such set-off and application. Each Lender and the Issuing Bank agrees to apply all amounts collected from any such set-off to the Obligations before applying such amounts to any other Indebtedness or other obligations owed by the Borrower or any of its Subsidiaries to such Lender or Issuing Bank.

              Section 10.8        Counterparts; Integration. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the other Loan Documents, and any separate letter agreement(s) relating to any fees payable to the Administrative Agent, the Lead Arrangers or any of their Affiliates constitute the entire agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters. Delivery of executed signature pages to any Loan Document by facsimile or electronic mail transmission shall be effective as delivery of manually executed counterparts thereof.

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Section 10.9          Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.19, 2.20, 2.21, 10.3 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. All representations and warranties made herein and in the certificates, reports, notices and other documents delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and the making of the Loans and the issuance of the Letters of Credit.

Section 10.10         Severability. Any provision of this Agreement or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 10.11         Confidentiality. Each of the Administrative Agent, the Issuing Bank and each Lender agrees to take normal and reasonable precautions to maintain the confidentiality of any information designated in writing as confidential and provided to it by the Borrower or any Subsidiary, except that such information may be disclosed (i) to any Related Party of the Administrative Agent, the Issuing Bank or any such Lender, including without limitation accountants, legal counsel and other advisors, (ii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iii) to the extent requested by any regulatory agency or authority having jurisdiction, (iv) to the extent that such information becomes publicly available other than as a result of a breach of this Section, or which becomes available to the Administrative Agent, the Issuing Bank, any Lender or any Related Party of any of the foregoing on a nonconfidential basis from a source other than the Borrower, (v) in connection with the exercise of any remedy hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, and (ix) subject to provisions substantially similar to this Section, to any pledgee referred to in Section 10.4(d), or any actual or prospective assignee or Participant, or (vi) with the consent of the Borrower. Any Person required to maintain the confidentiality of any information as provided for in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such Person would accord its own confidential information.

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Section 10.12         Interest and Loan Charges Not to Exceed Maximum Amounts Allowed by Law.  Anything in this Agreement, the Security Documents or any of the other Loan Documents to the contrary notwithstanding, in no event whatsoever, whether by reason of advancement of proceeds of the Loans, acceleration of the maturity of the unpaid balance of the Loans or otherwise, shall the interest and loan charges agreed to be paid to any Lender for the use of the money advanced or to be advanced hereunder exceed the maximum amounts collectible under applicable laws in effect from time to time. It is understood and agreed by the parties that, if for any reason whatsoever the interest or loan charges paid or contracted to be paid by Borrower in respect of the Loans shall exceed the maximum amounts collectible under applicable laws in effect from time to time, then ipso facto, the obligation to pay such interest and/or loan charges shall be reduced to the maximum amounts collectible under applicable laws in effect from time to time, and any amounts collected by any Lender that exceed such maximum amounts shall be applied to the reduction of the principal balance of the Loans and/or refunded to Borrower so that at no time shall the interest or loan charges paid or payable in respect of the Loans exceed the maximum amounts permitted from time to time by applicable law.

Section 10.13        U.S. Patriot Act Notification. The following notification is provided to the Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318: IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. When the Borrower opens an account, Administrative Agent, or Issuing Bank will ask for Borrower’s name, taxpayer identification number, address, and other information that will allow the identification of the Borrower. The Administrative Agent, a Lender or the Issuing Bank may also require Borrower’s legal organizational documents or other identifying documents.

Section 10.14         Prior Facility. Effective upon satisfaction of the conditions set forth in Section 3.1, this Agreement amends, restates, supersedes and replaces the Prior Facility in its entirety.

Section 10.15         Location of Closing. Each Lender acknowledges and agrees that it has delivered, with the intent to be bound, its executed counterparts of this Agreement to the Administrative Agent, c/o King & Spalding LLP, 1185 Avenue of the Americas, New York, New York 10036. Borrower acknowledges and agrees that it has delivered, with the intent to be bound, its executed counterparts of this Agreement and each other Loan Document, together with all other documents, instruments, opinions, certificates and other items required under Section 3.1, to the Administrative Agent, c/o King & Spalding LLP, 1185 Avenue of the Americas, New York, New York 10036. All parties agree that closing of the transactions contemplated by this Credit Agreement has occurred in New York.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
	HEALTHWAYS, INC.
	By:	/s/ Alfred Lumsdaine
	Name:	Alfred Lumsdaine
	Title:	Senior Vice President and Controller

SUNTRUST BANK, as Administrative Agent, as Issuing Bank, as Swingline Lender and as a Lender

By:	/s/ William D. Priester
Name:	William D. Priester
Title:	Director

JPMORGAN CHASE BANK, N.A.
By:	/s/ Dawn Lee Lum
Name:	Dawn Lee Lum
Title:	Vice President

FIFTH THIRD BANK, N.A.
By:	/s/ Sandy Hamrick
Name:	Sandy Hamrick
Title:	Vice President

REGIONS BANK
By:	/s/ Craig Gardella
Name:	Craig Gardella
Title:	Senior Vice President

U.S. BANK NATIONAL ASSOCIATION
By:	/s/ Monika K. Sahalda
Name:	Monika K. Sahalda
Title:	Vice President

UNITED OVERSEAS BANK LIMITED, NEW YORK AGENCY
By:	/s/ George Lim
Name:	George Lim
Title:	FVP & Agent
By:	/s/ Mario Sheng
Name:	Mario Sheng
Title:	AVP

NATIONAL CITY BANK
By:	/s/ Erica E. Dowd
Name:	Erica E. Dowd
Title:	Assistant Vice President

BANK OF AMERICA, N.A.
By:	/s/ Elizabeth L. Knox
Name:	Elizabeth L. Knox
Title:	Senior Vice President

LASALLE BANK NATIONAL ASSOCIATION
By:	/s/ Whitney M. Black
Name:	Whitney M. Black
Title:	Assistant Vice President

FIRST TENNESSEE BANK N.A.
By:	/s/ L. Anderson Galyon IV
Name:	L. Anderson Galyon IV
Title:	Vice President

UNION BANK OF CALIFORNIA, N.A.
By:	/s/ Michael Tschida
Name:	Michael Tschida
Title:	Vice President

COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES
By:	/s/ Edward C. A. Forsberg, Jr.
Name:	Edward C. A. Forsberg, Jr.
Title:	Senior Vice President & Manager
By:	/s/ Nivedita Persaud
Name:	Nivedita Persaud
Title:	Vice President

THE BANK OF NASHVILLE
By:	/s/ Dwayne Snider
Name:	Dwayne Snider
Title:	Vice President

BRANCH BANKING & TRUST COMPANY
By:	/s/ Natalie Ruggiero
Name:	Natalie Ruggiero
Title:	Assistant Vice President

SCHEDULE I

PRICING GRID

	Credit Facilities
(Basis Points Per Annum)	Consolidated Total Funded Debt to Consolidated EBITDA
		Level I	Level II	Level III	Level IV	Level V	Level VI
Facility Pricing		< 1.00x	>1.00x & < 1.50x	>1.50x & <2.00x	>2.00x & <2.50x	>2.50x & <3.00x	>3.00x
Eurodollar Margin		87.5	100.0	125.0	150.0	162.5	175.0
Applicable Percentage/ Commitment Fee		15.0	17.5	22.5	25.0	27.5	30.0
Base Rate Margin		0.0	0.0	0.0	0.0	0.0	25.0
Applicable Percentage/ Letter of Credit Fee		87.5	100.0	125.0	150.0	162.5	175.0

SCHEDULE II

COMMITMENT AMOUNTS

Lender	Revolving Commitment Amount		Term Loan Commitment Amount
SunTrust Bank	$	40,000,000	$	200,000,000
JPMorgan Chase Bank, N.A	$	40,000,000	$	0
Fifth Third Bank, N.A	$	40,000,000	$	0
Regions Bank	$	35,000,000	$	0
U.S. Bank National Association	$	35,000,000	$	0
National City Bank	$	30,000,000	$	0
Bank of America, N.A	$	30,000,000	$	0
LaSalle Bank, National Association	$	30,000,000	$	0
United Overseas Bank Limited, New York Agency	$	25,000,000	$	0
Union Bank of California, N.A	$	25,000,000	$	0
First Tennessee Bank N.A	$	20,000,000	$	0
Commerzbank AG, New York and Grand Cayman Branches	$	20,000,000	$	0
The Bank of Nashville	$	15,000,000	$	0
Branch Banking & Trust Company	$	15,000,000	$	0

EX-10

CONSULTING AGREEMENT

This Consulting Agreement (this “Agreement”) is entered into and made as of the 11th day of October, 2006 (“Agreement Date”) and shall be effective as set forth in Section 4.1 below by and between Healthways, Inc., a Delaware corporation (“HWAY”), and Rincon Advisors, LLC, an Arizona limited liability company (“Consultant”).

WHEREAS, HWAY and Axia Health Management, LLC (“Axia”), have entered into a Stock Purchase Agreement, dated as of October 11, 2006 (the “Purchase Agreement”), pursuant to which HWAY (or a wholly-owned subsidiary of HWAY) will acquire 100% of the capital stock of Axia Health Management, Inc. (the “Target”) from Axia (the “Transaction”);

WHEREAS, the sole member of Consultant is an employee of the Target and an equity holder and member of the Board of Manager/Directorsof Axia and, as such, possesses confidential and proprietary information regarding the Target and its subsidiaries;

WHEREAS, as an equity holder of Axia, the sole member of Consultant, L. Ben Lytle (the “Sole Member”), will receive significant financial consideration upon consummation of the Transaction;

WHEREAS, in connection with and contingent upon HWAY’s acquisition of Axia Health Management, Inc. (“Axia”), HWAY desires to hire Consultant as an independent contractor to perform consulting services for HWAY following the consummation of the Transaction; and

WHEREAS, Consultant has the experience and qualifications necessary to provide the Services (as defined below) to HWAY and is willing to perform such services on terms set forth more fully below.

WHEREAS, the execution of this Agreement, including without limitation the provisions of Section 1.4 hereof, is a condition of the Company’s entering into the Purchase Agreement and the consummation of the Transaction on the Closing Date (as defined in the Purchase Agreement).

NOW, THEREFORE, in consideration of the mutual premises and covenants contained herein, the parties agree as follows:

SECTION 1: DUTIES AND RESPONSIBILITIES

1.1Consulting Services. HWAY hereby engages Consultant to provide consulting services to HWAY. Consultant shall have the duties and responsibilities assigned to him from time to time by HWAY, including, but not limited to, those tasks and projects assigned to Consultant as described on the attached Exhibit A (the “Services”), as may be amended from time to time by the mutual agreement of HWAY and Consultant.

1.2Time Commitment. From the Effective Date of this Agreement to the termination of this Agreement, Consultant agrees to devote such time and effort to performing such duties as shall be reasonably required; provided however, HWAY acknowledges and agrees that the Consultant’s role will be part-time, and in any event: (i) will not require the Consultant to work for or on behalf of HWAY for more than two to three days per week (including travel); (ii) will allow the Consultant to be out of the United States for six to eight weeks at a time; (iii) will not involve significant travel, not to exceed two overnight trips per month; and (iv) will allow the Consultant to work from home unless there is a particular occasional short-term business requirement to be in HWAY’s offices in order to effectively perform his duties. Consultant shall maintain records with respect to the time spent in the performance of

Consultant’s duties and responsibilities hereunder and shall submit such records to HWAY as reasonably requested.

1.3Compliance with Law and Standards. Consultant shall at all times comply with all material applicable laws, rules and regulations of any and all governmental authorities and the applicable standards, bylaws, rules, compliance programs, policies and procedures of HWAY that are disclosed or made available to Consultant. Consultant further agrees that Consultant will not engage in any conduct which, in the reasonable determination of HWAY, adversely affects the image or business of HWAY or would impair in any material respect Consultant’s ability to carry out Consultant’s duties hereunder except as otherwise required by a court, law, governmental agency or regulation, or the Sole Member’s duties as a member of the board of directors of HWAY.

1.4 Non-Compete; Non-Solicitation.

(a) Consultant acknowledges that:

(i) the business of providing any care support services, health support services or “wellness” services (including without limitation, any in-person, telephonic, web-based or home monitoring program, service, application or device which is intended to improve the health or welfare of participants or users) in which HWAY is engaged (the “Business”) is intensely competitive and that the Consultant’s service relationship with HWAY will require that the Consultant have access to and knowledge of confidential information of HWAY relating to its business plans, financial data, marketing programs, client information, contracts and other trade secrets, in each case other than as and to the extent such information is generally known or publicly available through no violation of this Agreement by the Consultant;

(ii) the use or disclosure of such information other than in furtherance of the Business may place HWAY at a competitive disadvantage and may do damage, monetary or otherwise, to the Business; and

(iii) the engaging by the Consultant in any of the activities prohibited by this Section 1.4 shall constitute improper appropriation and/or use of such information. The Consultant expressly acknowledges the trade secret status of the Company’s confidential information and that the confidential information constitutes a protectable business interest of the Company. Other than as may be required in the performance of his/her duties, Consultant expressly agrees not to divulge such confidential information to anyone outside the Company without prior permission.

(b)“HWAY” (which shall be construed to include HWAY, its subsidiaries and their respective affiliates) and the Consultant agree that for a period equal to the longer of (i) five (5) years from the Closing Date of the Transaction and (ii) twelve (12) months after the date of termination, if the Consultant’s service relationship with HWAY, the Consultant shall not and shall cause each of its employees, members, officers, directors and managers not to:

(i) engage in Competition, as defined below, with HWAY within any market in which HWAY is conducting the Business at the time of termination of the Consultant’s service relationship with HWAY hereunder. Upon Consultant’s request in connection with the termination of this Agreement, HWAY shall provide Consultant a list of markets in which it is conducting the Business at the time of termination, which list shall, for purposes of this Agreement, constitute the definitive list of markets in which the Company is conducting the Business as of the date of termination. For purposes of this Agreement, “Competition” by the Consultant shall mean the Consultant’s, directly or indirectly, being employed by or acting as a consultant, advisor or lender to, or being a director, officer, employee,

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principal, agent, stockholder, member, owner or partner of, or permitting his name to be used in connection with the activities of any entity engaged in the Business, providedthat, it shall not be a violation of this sub-paragraph for the Consultant to become the registered or beneficial owner of less than five percent (5%) of any class of the capital stock of any one or more competing corporations registered under the 1934 Act, providedthat, the Consultant does not participate in the business of such corporation until such time as this covenant expires; and

(ii) directly or indirectly, for his/her benefit or for the benefit of any other person or entity, do any of the following:

(A) solicit from any customer, doing business with HWAY as of the Consultant’s termination, business of the same or of a similar nature to the Business of HWAY with such customer;

(B) solicit from any known potential customer of HWAY business of the same or of a similar nature to that which, to the knowledge of the Consultant, has been the subject of a written or oral bid, offer or proposal by HWAY, or of substantial preparation with a view to making such a bid, proposal or offer, within sixteen (16) months prior to the Consultant’s termination; or

(C) recruit or solicit the employment or services of any person who was employed by HWAY upon termination of the Consultant’s service relationship with HWAY and is employed by HWAY at the time of such recruitment or solicitation.

(iii) The Consultant acknowledges that the services to be rendered by Consultant to HWAY are of a special and unique character, which causes this Agreement to be of significant value to HWAY, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by Consultant of any of the provisions contained in this Section will cause HWAY irreparable injury. The Consultant therefore agrees that HWAY will be entitled, in addition to any other right or remedy, to a temporary, preliminary and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining the Consultant from any such violation or threatened violations. The Consultant acknowledges that the terms of this Section 1.4 and its obligations are reasonable and will not prohibit Consultant (including its Sole Member) from being employed or employable in the health care industry.

(iv) The time periods described in this Section 1.4(b) shall be tolled at any time in which the Consultant is in breach of this Agreement. If any restriction set forth in this Section 1.4(b) is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic areas as to which it may be enforceable.

1.5 Intellectual Property; Assignment of Inventions.

(a) “Developments” means any invention, modification, discovery, design, method, development, improvement, process, software program, work of authorship, documentation, formula, data, technique, know-how, trade secret or intellectual property right whatsoever or any interest therein (whether or not patentable or registrable under copyright, trademark or similar statutes or subject to analogous protection) that Consultant makes, conceives, discovers, invents or reduces to practice (alone or with others) before or during the term of this Agreement and that (a) relates to the Business or any customer of or supplier to the Company or any of the products or services being developed, produced,

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manufactured or sold by the Company or that may be used in relation therewith, (b) is developed in the course of performing the Services or otherswise results from the use of premises or personal property (whether tangible or intangible) owned, leased or contracted for by the Company, before or during the Consultant’s service relationship with HWAY, whether or not made during the Consultant’s regular hours, and whether or not made on the Company’s premises, and whether or not disclosed by the Consultant to the Company. Consultant agrees that such Developments and the benefits thereof are and shall immediately become the sole and absolute property of the Company and its assigns, and the Consultant hereby assigns, and to the extent any such assignment cannot be made at the present, agrees to assign all right, title and interest in and to such Developments to the Company, as works made for hire or otherwise, and the Company shall be deemed the sole author, creator, and inventor, as the case may be, of such Developments, and the Consultant shall promptly disclose to the Company (or any persons designated by it) each such Development and, as may be necessary to ensure the Company’s ownership of such Developments, the Consultant hereby assigns any rights (including, but not limited to, any copyrights, patents, and trademarks) the Consultant may have or acquire in the Developments and benefits and/or rights resulting therefrom to the Company and its assigns without further compensation, and the Consultant shall communicate, without cost or delay, and without disclosing to others the same, all available information relating thereto (with all necessary plans and models) to the Company.

(b) The Consultant agrees and acknowledges that the foregoing assignment covers all Developments made, conceived, created, discovered, invented or reduced to practice prior to the date of the Consultant’s execution of this Agreement, whether by Consult or any of its members, employees, officers, directors or managers as a service provider to or employee of Target, Axia, HWAY or otherwise, except for those Developments that are expressly identified as Excluded Material in Section 1.5(g) below.

(c) The Consultant will, during Consultant’s service relationship with HWAY and at any time thereafter, at the request and cost of HWAY, promptly sign, execute, make and do all such deeds, documents, acts and things as HWAY and its duly authorized agents may reasonably require in order to:

(i) apply for, obtain, register and vest in the name of HWAY alone (unless HWAY otherwise directs) letters patent, copyrights, trademarks or other analogous protection in any country throughout the world and when so obtained or vested to renew and restore the same; and

(ii) defend any judicial, opposition or other proceedings in respect of such applications and any judicial, opposition or other proceedings or petitions or applications for revocation of such letters patent, copyright, trademark or other analogous protection.

(d) The Consultant agrees to waive, and hereby waives, all moral rights which the Consultant may have in or to any Developments and, to the extent that such rights may not be waived, Consultant agrees not to assert such rights against HWAY or its licensees.

(e) In the event HWAY is unable, after reasonable effort, to secure the Consultant’s signature on any application for letters patent, copyright or trademark registration or other documents regarding any legal protection relating to a Development, whether because of the Consultant’s death, physical or mental incapacity, unknown whereabouts, lack of cooperation or for any other reason whatsoever, the Consultant hereby irrevocably designates and appoints HWAY and its duly authorized officers and agents as the Consultant’s agent and attorney-in-fact, to act for an in the Consultant’s behalf and stead solely to execute and file any such application or applications or other documents and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent, copyright or trademark registrations or any other legal protection thereon with the same legal force and effect as if executed by the Consultant.

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(f) The Consultant shall make and maintain adequate and current written records of all Confidential Information and Developments which by virtue of this Agreement are the sole property of HWAY and shall disclose same promptly, fully and in writing to the Chief Executive Officer or another duly authorized officer, irrespective of whether such Confidential Information or Developments are conceived, developed or made after the termination of Consultant’s service relationship with HWAY.

(g) The Consultant represents that to the best of its knowledge after due investigation, the Developments, if any, listed on Exhibit B attached hereto comprise all the Developments that Consultant or any of its members, employees, officers, directors or managers has made, conceived or created prior to the date hereof that Consultant does not intend to assign to HWAY in accordance with this subsection (C) (if any, collectively the “Excluded Material”). Consultant understands that it is only necessary to list the title and purpose of such Developments but not details thereof.

(h) If during the period of the Consultant’s service relationship with HWAY or during the six (6) month period next succeeding the termination of such service relationship with HWAY, Consultant incorporates into any Development, any Excluded Material or any other proprietary information or material owned by the Consultant or in which Consultant has an interest, Consultant hereby grants, and to the extent any such grant cannot be made at the present, the Consultant agrees to grant to HWAY a non-exclusive, royalty-free, irrevocable, perpetual, transferable worldwide license, with the right to sublicense, to make, use, refrain from using, sell, offer for sale, import, modify, delete, add to, reproduce, create derivative works based upon, distribute, perform, display or exploit in any way, such Excluded Material and such other proprietary information or material, in whole or in part, by any means, not known or later developed, in all languages, as part of or in connection with any such Developments

1.6Proprietary Information and Confidentiality. In the course of performance of this Agreement, HWAY will disclose to Consultant technical information, services information, financial information, customer lists, customer data, prospective customer lists, operational information, marketing information, pricing information, strategic plans, business plans, product ideas, product descriptions, promotional plans, contracts, manuals, protocols and other information that is regarded as confidential and proprietary to HWAY (“Proprietary and Confidential Information”). Except as otherwise specifically required by a court, law, governmental agency or regulation, Consultant agrees to protect and keep such Proprietary and Confidential Information confidential and to not use or disclose such Proprietary and Confidential Information for any purpose other than those specifically contemplated by this Agreement. In the event this Agreement expires or terminates for any reason, Consultant shall return promptly all Proprietary and Confidential Information in Consultant’s possession to HWAY, except as otherwise specifically required by a court, law, governmental agency or regulation. The provisions of this Section 1.6 shall survive the termination of this Agreement.

1.7Enforcement. In the event of a breach of Section 1.4 through 1.6, Consultant understands and agrees that HWAY shall be entitled to injunctive relief without the necessity of posting a bond or demonstrating actual damages, as well as any and all other applicable remedies at law and in equity.

1.8Consultant’s Representatives and Warranties. Consultant hereby represents and warrants that the execution, delivery and performance of this Agreement by Consultant does not, and will not, conflict with, result in any breach of any provisions of, constitute a default under, result in a violation of, result in the creation of a right of termination of any agreement or instrument to which Consultant is a party or by which Consultant is bound, or require any authorization, consent, approval or other action by any other party.

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1.9Non-Discrimination. In providing Services under this Agreement, Consultant shall not discriminate on the basis of race, color, sex, age, religion, national origin, handicap, payment source or on any other basis prohibited by applicable law.

1.10Non-Disparagement. Except as otherwise specifically required by a court, law, governmental agency or regulation, the Consultant hereby agrees from and after the date hereof that the Consultant will not make or publish either orally or in writing, any disparaging, defamatory, derogatory or other negative comments about HWAY or any of its employees, officers, directors, equityholders, products, practices, operations, business, financial condition, plans or prospects.

SECTION 2: COMPENSATION

In consideration for performance of the Services, Consultant shall be paid at the rate of $20,833.33 per month, payable in arrears automatically on the fifteenth (15^th) day of every month beginning the month after the Effective Date. In addition, HWAY shall pay Consultant compensation of $5,000 per “work day” or $625 per “work hour” for partial days worked. For purposes of this Agreement, “work day” means each day that the Consultant is requested by HWAY to perform the Services and Consultant performs the Services accordingly. Consultant shall be entitled to reimbursement from HWAY for reasonable, substantiated out-of-pocket expenses incurred in the course of performing the Services. Consultant shall deliver to HWAY a monthly invoice, including receipts, setting forth in detail the expenses that Consultant believes are required to be paid by HWAY.

SECTION 3: INDEMNIFICATION

3.1Mutual Indemnification. Each party hereby agrees to indemnify, defend and hold the other party and such other party’s directors, officers, employees, agents, shareholders and affiliates, of any, harmless from and against any and all claims, actions, liability, loss, costs and expenses (including without limitation costs of judgments, settlements, court costs and reasonable attorneys’ fees and costs) arising out of or relating to, or alleged to arise out of or relate to, grossly negligent or intentional acts or omissions of the indemnifying party or any failure by the indemnifying party to perform any obligation or covenant of the indemnifying party under this Agreement.

3.2Right to Indemnification for Consultant. HWAY shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, Consultant and its members and managers if they are, are made or are threatened to be made a party or are otherwise involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (a “proceeding”), by reason of the fact that it, he or she or a person for whom he or she is the legal representative, is or was an agent of HWAY or is or was serving at the request of HWAY under this Agreement or as a director, member, manager, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, enterprise, or nonprofit entity, including service with respect to employee benefit plans (an “indemnitee” under this Section 3.2 or if applicable under Section 3.1 above), against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such indemnitee.

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3.3Prepayment of Expenses. HWAY shall pay the expenses (including attorneys’ fees) incurred by an indemnitee in defending any proceeding not initiated by Consultant in advance of its final disposition, provided, however, that the payment of expenses incurred by an indemnitee in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the indemnitee to repay all amounts advanced if it should be ultimately determined that the indemnitee is not entitled to be indemnified under this Section 3 or that the Consultant engaged in gross negligence.

3.4Claims. Subject to Section 3.3, if a claim for indemnification or payment of expenses under this Section 3 that is not being contested in good faith is not paid in full within sixty (60) days after a written claim therefor by the indemnitee has been received by HWAY, the indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expenses of prosecuting such claim.

3.5Nonexclusivity of Rights. The rights conferred on any person by this Section 3 shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, or agreement, or otherwise.

SECTION 4: EFFECTIVE DATE; TERM AND TERMINATION

4.1Effective Time. This Agreement shall become effective upon the consummation of the Transaction on the Closing Date (as defined in the Purchase Agreement) (the “Effective Date”). In the event that the proposed acquisition of the Target not consummated in accordance with the Purchase Agreement, this Agreement shall be null and void and shall have no further effect.

4.2Term. This Agreement will commence on the Effective Date and will terminate on the second anniversary of the Effective Date (the “Initial Term”) unless sooner terminated as set forth herein. Thereafter, this Agreement shall renew on mutually agreed terms, conditions, and provisions as contained herein, for additional one (1) year terms (each, a “Renewal Term” and together with the Initial Term, the “Term”) upon the mutual agreement of HWAY and Consultant.

4.3Termination by HWAY for Cause. HWAY may terminate this Agreement at any time upon the occurrence of any of the following: (a) Consultant’s repeated failure to perform timely any of the duties as set forth in this Agreement; (b) Consultant’s (or the Sole Member’s) conviction of any crime punishable as a felony; commission of any act or omission involving dishonesty or fraud with respect to HWAY, any of its affiliates or any of their respective customers or suppliers, (c) Consultant’s professional misconduct tending to bring HWAY or any of its affiliates into public disgrace or disrepute, (d) the death, disability or mental incompetence of Consultant’s Sole Member; or (e) suspension or exclusion of Consultant or the Sole Member from any federal or state health care program.

4.4Termination Without Cause. This Agreement may be terminated by either party at any time without cause upon thirty (30) days’ written notice to the other party and all compensation due to Consultant will be reconciled and paid with no further obligations on either party.

4.5Payments Upon Termination. Upon a termination of this Agreement for any reason whatsoever pursuant to this Section 4, Consultant shall be entitled to (i) all compensation accrued hereunder (including any payments that are being made in arrears) and (ii) expense reimbursement pursuant to Section 2 through the date of termination with no further payment obligation hereunder on the part of HWAY.

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SECTION 5: INDEPENDENT CONTRACTOR STATUS

5.1The relationship existing under this Agreement between Consultant and HWAY is, and shall remain, that of an independent contractor. Nothing in this Agreement shall be construed to constitute either party as the employee or joint venturer of the other, nor shall either party have the right to bind the other or make any promises or representations on behalf of the other party. Consultant shall have no authority to bind HWAY to any agreement. Consultant shall have no claim against HWAY under this Agreement for vacation pay, sick leave, retirement benefits, employee benefits, social security, workers compensation, disability or unemployment insurance benefits or other employment benefits of any kind. Other than the expenses identified in Section 2 hereof, Consultant shall be responsible for all personal and professional expenses, including, but not limited to, membership and licensure fees and dues and expenses of attending conventions and meetings.

5.2Consultant is solely responsible for all, and shall pay all, required taxes in connection with the compensation paid to Consultant pursuant to this Agreement. HWAY will not withhold income taxes, or withhold or pay social security taxes (FICA) or Medicare taxes with respect to any such amount.

SECTION 6: GENERAL PROVISIONS

6.1 Governing Law; Venue. This Agreement shall be governed by the laws of the State of Tennessee without reference to the conflicts of law principles thereof. The parties understand and agree that, by signing hereto, they are making themselves subject to, and agree to be subject to, the jurisdiction of the state and federal courts of the State of Tennessee and that any action arising out of Consultant’s services and/or the terms and conditions hereof shall be filed in, and only be filed in, the Chancery of Davidson County, at Nashville, or in a matter of which there is federal jurisdiction, the United States District Court for the Middle District of Tennessee, at Nashville. The parties understand and agree that this choice of forum clause is and will be enforceable regardless of the choice of law provisions of any other state.

6.2 Entire Agreement. This Agreement and the Exhibits hereto form the entire agreement of the parties and supersede any prior agreements between them with respect to the subject matter hereof.

6.3Waiver. Waiver of any term or provision of this Agreement or forbearance to enforce any term or provision by either party shall not constitute a waiver as to any subsequent breach or failure of the same term or provision or a waiver of any other term or provision of this Agreement.

6.4Assignment. Consultant acknowledges that the Services to be rendered by Consultant are unique and personal and that Consultant therefore may not assign such rights, duties or obligations hereunder without the prior written permission of HWAY. HWAY expressly reserves the right to assign any and all of its rights, and delegate any and all of its duties hereunder, to a subsidiary of HWAY.

6.5Notice. All notices, requests, demands and other communications given under or by reason of this Agreement shall be in writing and shall be deemed given when delivered in person, by facsimile or other electronic transmission with confirmation or when mailed, by certified mail (return receipt requested), postage prepaid, addressed as follows (or to such other address as a party may specify by notice pursuant to this provision):

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(a) To HWAY:

Healthways, Inc.

3841 Green Hills Village Drive

Nashville, Tennessee 37215

Attn: Ben R. Leedle, Jr.

(b) To Consultant:

Rincon Advisors, LLC

c/o L. Ben Lytle

1959 South Power Road

Suite 103-448

Mesa, AZ 85206-4398

6.6Additional Instruments. The parties shall execute and deliver any and all additional instruments and agreements that may be necessary or proper to carry out the purposes of this Agreement.

6.7Severability. If any provision of this Agreement is rendered or declared illegal or unenforceable by reason of any existing or subsequently enacted legislation or by the decision of or decree of a court of last resort, the parties shall promptly meet and negotiate substitute provisions for those rendered or declared illegal or unenforceable to preserve the original intent of this Agreement to the extent legally possible, but all other provisions of this Agreement shall remain in full force and effect.

6.8Headings. The headings of the Sections and Articles of this Agreement are inserted for convenience of reference only and shall no in any manner affect the construction or meaning of anything herein contained or govern the rights or liabilities of the parties hereto.

6.9Survival. It is understood that termination of this Agreement shall not relieve a party hereto from any liability that, at the time of such termination, has already accrued hereunder. The following provisions and all subsections therein shall survive any expiration or termination of this Agreement: Sections 1.4, 1.5, 1.6, 3, 4.5 and this Section 6. Except as otherwise expressly provided in this Section 6.9, all other rights and obligations of the parties under this Agreement shall terminate upon termination of this Agreement.

6.10Execution. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

Consultant: HWAY:

Rincon Advisors, LLC Healthways, Inc.

/s/ L. Ben Lytle	By: /s/ Ben R. Leedle, Jr.
L. Ben Lytle, its sole member	Name: Ben R. Leedle, Jr.
	Title: Chief Executive Officer

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Exhibit A

Services

Services:

Consultant is directly responsible for the following areas, among others as requested by HWAY:

• Focusing on driving top line growth, innovation and Total Population Health for Healthways

• Focusing on creating, driving and supporting strategic customer relationships including “Introduction” processes for potential clients.

Exhibit A - 1

EXHIBIT B

Excluded Material

Exhibit B - 1

EX-10

SUBSCRIPTION AGREEMENT

Ben Lytle (“Lytle”)

The L. Ben Lytle Amended and Restated Revocable Living Trust, U/A dated October 20, 2000(“Subscriber”)

Purchaser Representative: N/A

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES ACT OF ANY STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OF THEM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND/OR APPLICABLE STATE SECURITIES ACTS OR AN OPINION OF COUNSEL TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR ACTS.

THIS INVESTMENT MAY BE SUBJECT TO ADDITIONAL STATE REQUIREMENTS AS SET FORTH BELOW. INVESTORS SHOULD REFER TO THOSE REQUIREMENTS BEFORE EXECUTING THIS AGREEMENT.

Healthways, Inc.

3841 Green Hills Village Drive

Nashville, TN 37215

Ladies and Gentlemen:

Healthways, Inc., (the “Company”) and Axia Health Management, LLC (“Axia”) have entered into a Stock Purchase Agreement, dated as of October 11, 2006 (the “Purchase Agreement”), pursuant to which the Company (or a wholly-owned subsidiary of the Company) will acquire 100% of the capital stock of Axia Health Management, Inc. (the “Target”) from Axia (the “Transaction”);

In connection with and subject to consummation of the Transaction, the Subscriber desires to subscribe for shares of common stock, par value $0.001 per share (the “Common Stock”) of the Company.

1.Subscription. The undersigned hereby irrevocably subscribes for and agrees to purchase 123,305 shares of Common Stock (the “Shares”) at the closing market price of the Common Stock of the Company on the date of this Subscription Agreement of $40.55 for an aggregate subscription price of $5,000,017.75 (the “Purchase Price”), in accordance with the terms and conditions of this Subscription Agreement.

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2.Subscription Closing. The closing on the purchase and sale of the Shares under this Subscription Agreement (the “ Subscription Closing”) shall take place at the offices of the Company on the Closing Date (as defined in the Purchase Agreement), contemporaneously with the consummation of the Transaction.

3.Deliveries at Subscription Closing; Indemnity Escrow. (a) At the Subscription Closing, the Company shall deliver to the Subscriber a certificate for the Shares purchased by the Subscriber, registered in the name of the Subscriber, against payment to the Company of the Purchase Price by check or wire transfer of immediately available funds, to an account designated by the Company; provided that the Company shall withhold from the number of Shares delivered to the Subscriber that number of Shares as determined in accordance with Exhibit A (the “Escrow Shares”). For purposes of determining the number of Escrow Shares to be delivered to the Escrow Agent (as defined in the Purchase Agreement) pursuant to this Section 3, the Shares will be deemed to have a value equal to the market closing price of the Common Stock on the date immediately preceding the Closing Date. As soon as practicable after the Subscription Closing, and in accordance with the provisions of the Indemnity Escrow Agreement (as defined in the Purchase Agreement), the Company will cause to be deposited with the Escrow Agent certificates representing the Escrow Shares, issued in the name of the Subscriber according to the number of Escrow Shares withheld from the Subscriber hereunder, together with related stock transfer powers which shall be delivered by Subscriber.

(b)The Escrow Agent will hold the Escrow Shares and any dividends and distributions on the Escrow Shares as collateral for Axia’s indemnification obligations pursuant to the Purchase Agreement, and shall release such Escrow Shares and any dividends or distributions thereon in accordance with the terms of the Escrow Agreement.

4.Representations and Warranties of Undersigned. The undersigned hereby represents and warrants to the Company that:

(a)the Subscriber, if an individual, is not less than twenty-one years of age;

(b)the Subscriber, either alone or with his or its Purchaser Representative, if any, named below has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Company, and, if a resident of a certain state, meets any additional suitability standards applicable to him under state law;

(c) if the Subscriber is utilizing a Purchaser Representative for this investment:

(i)such Purchaser Representative, named at the beginning of this Agreement, has acted as his or its “Purchaser Representative” as defined in Regulation D under the Securities Act of 1933, as amended (the “1933 Act”);

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(ii)the Subscriber has relied upon the advice of such Purchaser Representative as to the merits of an investment in the Company and the suitability of such investment for the Subscriber; and

(iii)such Purchaser Representative has heretofore confirmed to the Subscriber in writing (a true and correct copy of which is furnished to the Company herewith) during the course of this transaction any past, present or future material relationship, actual or contemplated, between the Purchaser Representative and/or its affiliates and the Company and/or any of its affiliates, and any compensation received or to be received as a result thereof;

(d) if the Subscriber is a trust or other entity:

(i) it was not formed for the purpose of this investment;

(ii)it is authorized and otherwise duly qualified to purchase and hold Shares; and

(iii)this Subscription Agreement has been duly and validly authorized and executed and, when delivered, will constitute the legal, valid, binding and enforceable obligation of the Subscriber;

(e)the Subscriber is not subject to a statutory disqualification, as set forth in Section 3(a)(39) of the 1934 Act;

(f)the Subscriber and his or its Purchaser Representative, if any, have been given full and complete access to all information with respect to the Company and the Company’s proposed activities that the Subscriber and his or its Purchaser Representative, if any, have deemed necessary to evaluate the merits and risks of an investment in the Company;

(g)the Subscriber and, if applicable, his or its Purchaser Representative, have had a full opportunity to ask questions of and to receive satisfactory answers from a representative of the Company concerning the terms and conditions of this investment and all such questions have been answered to the full satisfaction of the Subscriber;

(h)the Subscriber and, if applicable, his or its Purchaser Representative, have had the opportunity to receive documents related to the Company and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the Offering and have read carefully copies of the Company’s SEC Filings, including the exhibits thereto, and the Subscriber is familiar with and agrees to all the terms and conditions of the offering of Shares;

(i)the Subscriber is aware of the risks associated with an investment in the Company, including those described in the “Risk Factors” section of the Company’s SEC Filings;

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(j)the Subscriber has adequate means of providing for his or its current needs and possible personal contingencies, has no need for liquidity with respect to his or its investment in the Company, and has financial resources sufficient to bear the economic risk of such investment;

(k)the Subscriber has been advised and understands that an investment in the Company is highly speculative and has received no representations or warranties from the Company with respect to such investment;

(l)the Subscriber acknowledges that there are substantial restrictions on the transferability of, and there will be no public market for, the Shares and, accordingly, it may not be possible for the Subscriber to liquidate his or its investment in case of an emergency or otherwise, and the Subscriber has been advised that while Rule 144 of the 1933 Act is presently applicable to Shares, the Subscriber understands that Rule 144 may not be available in the future to the Shares;

(m)the Subscriber is aware that no securities administrator of any state or federal government has made or will make any finding or determination relating to this investment;

(n)Shares subscribed for hereby are being purchased for the Subscriber’s own account (or a trust account if the Subscriber is a trustee), for investment purposes only and are not being purchased with a view to or for any resale, fractionalization, subdivision or distribution of such Shares; and

(o)all information which the Subscriber and his or its Purchaser Representative, if any, has provided to the Company, including (but not limited to) the information, representations and warranties of the Subscriber contained in the Purchaser Suitability Statement executed by the Subscriber and submitted to the Company in connection with this Subscription, is true and correct in all material respects as of the date set forth below and the Subscriber agrees to furnish any additional information which the Company may request so as to determine the suitability of the Subscriber, and to notify the Company immediately should any material changes in such information occur.

5. Covenants. Lytle and the Subscriber hereby covenant and agree as follows:

(a)For so long as Lytle is a member of the Company’s board of directors (the “Board”), (i) Lytle shall at all times, meet the minimum requirements for stock holdings by members of the Board, as are established by the Board from time to time, and (ii) the Subscriber shall not Transfer more than twenty percent (20%) of the Shares then held by the Subscriber in any calendar year;

(b)The Subscriber shall not Transfer all or any portion of the Shares prior to January 1, 2008;

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(c)The restrictions set forth in Section 5(a) and 5(b) shall not apply, and (subject to compliance with applicable securities laws and generally applicable requirements of the Board with respect to former Board members) the Subscriber (or his or its successors and/or assigns) shall be permitted to Transfer the Shares at any time after Lytle ceases to be a member of the Board, other than as a result of (i) Lytle’s voluntary resignation prior to January 1, 2007 not due a Disability, or (ii) Lytle’s removal from the Board for cause, as reasonably determined by the Board, in either of which case the restrictions set forth in Section 5(a)(ii) and Section 6(b) shall remain applicable.

(d)Notwithstanding anything to the contrary set forth herein, for so long as any Escrow Shares are held by the Escrow Agent pursuant to the Indemnity Escrow Agreement, Escrow Shares may be Transferred solely in accordance with and subject to the terms of the Indemnity Escrow Agreement.

(e) For purposes hereof, the following terms shall have the following meanings:

“Transfer”means any direct or indirect transfer, donation, gift, sale, assignment, pledge, hypothecation, grant of a security interest in or other disposal or attempted disposal of all or any portion of a security or of any rights. “Transferred” means the accomplishment of a Transfer, and “Transferee” means the recipient of a Transfer.

“Disability” shall mean that the Subscriber is unable, as determined by the Board (or any designated committee of the Board), to perform the essential functions of his or its regular duties and responsibilities as a member of the Board, with or without reasonable accommodation, due in the judgment of a physician selected by, or reasonably acceptable to the Board, to a physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months.

6.Compliance with Federal and State Securities Laws. The undersigned understands and agrees that the following restrictions and limitations are applicable to his or its purchase, and any subsequent resale, pledge, hypothecation or other Transfer of Shares:

(a)The Shares shall not be sold, pledged, hypothecated or otherwise Transferred unless such Shares are registered under the 1933 Act and applicable state securities laws, or the Transfer of such Shares is exempt therefrom.

(b)A legend in substantially the following form has been or will be placed on any certificates evidencing Shares:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES, AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND/OR APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE

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COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR LAWS.

7. Registration Rights.

(a)Registration. At the request of the Subscriber, the Company shall use reasonable commercial efforts to file a registration statement on Form S-3 (or any successor form) (the “Registration Statement”) within thirty (30) days after the restrictions described in Sections 5(a) and (b) cease, terminate or lapse with respect to all or part of the Shares (the “Registrable Securities”). The Company shall use reasonable commercial efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof.

(b)Delays. The Company may postpone the filing or effectiveness of any registration statement required pursuant to this Section 7 for a reasonable period of time, not to exceed one-hundred twenty (120) days in the aggregate, in any 12-month period, if the Board determines in good faith, that such filing or effectiveness would (i) reasonably be expected to have a material adverse effect on (x) any proposal or plan by the Company to engage in any financing, acquisition, disposition of assets or other plan outside the ordinary course of business or (y) any merger, consolidation, tender offer or similar transaction, (ii) require that information which the Board determines in good faith the disclosure of which would be detrimental to the Company, be disclosed, (iii) require a special audit of the Company’s financial statements, or (iv) otherwise be materially detrimental to the Company.

(c)Expenses. The Company shall pay all expenses incurred by the Company in connection with the registration, qualification and/or exemption of the Shares, including any Securities and Exchange Commission (“SEC”) and state securities law registration and filing fees, printing expenses, fees and disbursements of the Company’s counsel and accountants, transfer agents’ and registrars’ fees, fees and disbursements of experts used by the Company in connection with such registration, qualification and/or exemption, and expenses incidental to any amendment or supplement to the registration statement or prospectuses contained therein. The Company shall not, however, be liable for any sales, broker’s or underwriting commissions upon sale by the Subscriber or other holder of any of the Shares.

(d)Registration Period. The Company shall use reasonable commercial efforts to keep the registration statement required pursuant to Section 7(a) hereof (the “Registration Statement”) effective pursuant to Rule 415 under the 1933 Act at all times until the earlier of (i) the date on which the Subscriber shall have sold all the Registrable Securities or (ii) the date on which all Registrable Securities may be sold without volume restrictions pursuant to Rule 144(k) under the 1933 Act (the “Registration Period”).

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(e)Amendments. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with such Registration Statement, as may be necessary to keep such Registration Statement (i) effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement and (ii) from containing any untrue statement of a material fact or omitting to state a material fact required to be stated therein to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, that the Company shall be required to notify the Subscriber, and may suspend sales under such Registration Statement for a period of up to three months if the Board determines in good faith that to amend or supplement such Registration Statement would (i) reasonably be expected to have a material adverse effect on (x) any proposal or plan by the Company to engage in any financing, acquisition, disposition of assets or other plan outside the ordinary course of business or (y) any merger, consolidation, tender offer or similar transaction, (ii) require that information which the Board determines in good faith the disclosure of which would be detrimental to the Company, be disclosed, (iii) require a special audit of the Company’s financial statements, or (iv) otherwise be materially detrimental to the Company, it being understood that the period for which the Company is obligated to keep the Registration Statement effective shall be extended for a number of days equal to the number of days the Company suspends sales under the Registration Statement pursuant to this provision. Upon receipt of any notice pursuant to this Section 7(e), the Subscriber shall suspend all offers and sales of securities of the Company and all use of any prospectus until advised by the Company that offers and sales may resume, and shall keep confidential the fact and content of any notice given by the Company pursuant to this Section 7(e).

(f)State Securities Laws. If qualification or registration under any state securities laws is required inn connection with such registration, the Company shall use reasonable commercial efforts to register or qualify the Registrable Securities covered by such Registration Statement under the securities laws of such jurisdictions within the United States as the Subscriber may reasonably request; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction.

8.Indemnification of the Company. The undersigned acknowledges and understands the meaning and legal consequences of the representations and warranties herein and hereby agrees to indemnify and hold harmless the Company and its officers, directors, controlling persons, agents, employees, attorneys and accountants from and against any and all loss, damage or liability, together with all costs and expenses (including attorneys fees and disbursements) which any of them may incur by reason of:

(a)any breach of any representation, warranty or agreement of the Subscriber contained in this Subscription Agreement; or

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(b)any false, misleading or inaccurate information, or any breach of any representation, warranty or agreement of the Subscriber, contained in the Purchaser Suitability Statement executed by the Subscriber.

Notwithstanding the foregoing, no representation, warranty, acknowledgment or agreement made herein by the Subscriber shall in any manner be deemed to constitute a waiver of any rights of the Subscriber under federal or state securities laws. All representations, warranties and covenants contained in this Subscription Agreement and the Purchaser Suitability Statement executed by the Subscriber, and the indemnification contained in this Section 8, shall survive the closing of the transactions contemplated hereby.

9. Indemnification of Selling Shareholder. For purposes of this Section 9:

(a)the term “Selling Shareholder” shall mean the Subscriber, the directors, officers, partners, members, employees, agents, representatives of, and each person, if any, who controls the Subscriber within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act;

(b)the term “Registration Statement” shall include any final Prospectus, exhibit, supplement or amendment included in or relating to, and any document incorporated by reference in, the Registration Statement (or deemed to be a part thereof) referred to in Section7(a); and

(c)the term “untrue statement” shall mean any untrue statement or alleged untrue statement, or any omission or alleged omission to state in the Registration Statement or the a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made not misleading.

(d)(i)The Company agrees to indemnify and hold harmless Selling Shareholder from and against any losses, claims, damages or liabilities to which such Selling Shareholder may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (a) any untrue statement of a material fact contained in the Registration Statement or the Prospectus; (b) any inaccuracy in the representations and warranties of the Company contained in the Agreement or the failure of the Company to perform its obligations hereunder; or (c) any breach by the Company of any of its representations and warranties in this Agreement or the failure by the Company to comply with any agreement or covenant contained in this Agreement or to fulfill any undertaking included in the Registration Statement, and the Company will reimburse such Selling Shareholder for any reasonable legal expense or other actual accountable out of pocket expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration Statement in reliance upon and in conformity with written information furnished to the

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Company by such Selling Shareholder specifically for use in preparation of the Registration Statement, or any inaccuracy in representations made by such Selling Shareholder herein or in the Subscriber Questionnaire, or the failure of such Selling Shareholder to comply with its covenants and agreements contained herein, or any statement or omission prior to the pertinent sale or sales by the Selling Shareholder.

(ii)Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 9, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party under this Section 9 (except to the extent that such omission materially and adversely affects the indemnifying party’s ability to defend such action) or from any liability otherwise than under this Section 9. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof (unless it has failed to assume the defense thereof and appoint counsel reasonably satisfactory to the indemnified party), such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof; provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the reasonable opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, however, that no indemnifying person shall be responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all indemnified parties. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could reasonably have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding.

(iii)If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless an indemnified party under subsection (c)(i) and (d) (ii) above in respect of any losses, claims, damages or

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liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Subscriber on the other in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Company on the one hand or the Subscriber on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Company and the Subscriber agree that it would not be just and equitable if contribution pursuant to this subsection (c) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (c). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (c) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (c), the Subscriber shall not be required to contribute any amount in excess of the net amount of the proceeds received by the Subscriber from the sale of the Shares pursuant to the Registration Statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 9, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 9 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement as required by the Securities Act and the Exchange Act.

10.Applicable Law. This Subscription Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (other than the choice of laws rules thereof).

11.Gender. Whenever the singular number is used herein and when required by the context, the same shall include the plural and the masculine gender shall include the feminine and, where applicable, shall include any corporation, firm or partnership executing this Subscription Agreement.

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12.Binding Effect. This Subscription Agreement shall be binding upon and inure to the benefit of the Subscriber and his or its successors and neither this Subscription Agreement nor any interest herein shall be assignable by him. This Subscription Agreement shall inure to the benefit of the Company and its successors and assigns, and upon its acceptance by the Company shall be binding upon the Company and its successors and assigns.

13.Joint and Several Representations. Each representation, warranty and undertaking herein shall be the joint and several representations warranty and undertaking of Lytle and the Subscriber. If the Subscriber is a partnership, corporation, trust or other entity, the Subscriber further represents and warrants that (a) the individual executing this Subscription Agreement on behalf of the Subscriber has full power and authority to execute and deliver this Subscription Agreement on behalf of the Subscriber and (b) the Subscriber has full right and power to perform its obligations pursuant to the provisions hereof and become a stockholder of the Company.

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IN WITNESS WHEREOF, the Subscriber has executed and sealed this Subscription Agreement this _11th__ day of October, 2006.

/s/ L. Ben Lytle

L. Ben Lytle

The L. Ben Lytle Amended and Restated

Revocable Living Trust, U/A

dated October 20, 2000

By: /s/ L. Ben Lytle

Name:

Title:

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Subject to the terms and conditions of this Subscription Agreement, the foregoing subscription is approved and accepted as of the __11th_ day of October, 2006.

HEALTHWAYS, INC.

By: /s/ Ben R. Leedle, Jr.

Name: Ben R. Leedle, Jr.

Title: Chief Executive Officer

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Exhibit A

Escrow Shares

The number of Escrow Shares will be determined at the Subscription Closing by dividing the dollar value of the Lytle obligation to contribute to the escrow fund, as determined between Seller and Lytle, held pursuant to the Indemnity Escrow Agreement (i.e., the sum of the Aggregate Escrow Amount less the Cash Escrow Fund) by the market closing price per share of the Common Stock on the date immediately preceding the Closing Date.

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EX-11

Exhibit 11

Healthways, Inc.
Earnings Per Share Reconciliation
November 30, 2006
(Unaudited)
(In thousands, except earnings per share data)

                The following is a reconciliation of the numerator and denominator of basic and diluted earnings per share:

	Three Months Ended November 30,
	2006		2005
Numerator:
Net income - numerator for basic earnings per share	$	11,834	$	6,456
Effect of dilutive securities		—		—
Numerator for diluted earnings per share	$	11,834	$	6,456
Denominator:
Shares used for basic earnings per share		34,627		33,961
Effect of dilutive stock options and awards		1,981		2,012
Shares used for diluted earnings per share		36,608		35,973
Earnings per share:
Basic	$	0.34	$	0.19
Diluted	$	0.32	$	0.18

EX-31

Exhibit 31.1
CERTIFICATION
I, Ben R. Leedle, Jr., certify that:
1.             I have reviewed this quarterly report on Form 10-Q of Healthways, Inc.;
2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.             The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.             The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: January 9, 2007
	/s/ Ben R. Leedle, Jr.
	Ben R. Leedle, Jr. President and Chief Executive Officer

EX-31

Exhibit 31.2
CERTIFICATION
I, Mary A. Chaput, certify that:
1.             I have reviewed this quarterly report on Form 10-Q of Healthways, Inc.;
2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.             The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.             The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: January 9, 2007
	/s/ Mary A. Chaput
	Mary A. Chaput Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Healthways, Inc. (the “Company”) on Form 10-Q for the period ended November 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Ben R. Leedle, Jr., President and Chief Executive Officer of the Company, and Mary A. Chaput, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 (1)      The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 (2)      The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ben R. Leedle, Jr.

Ben R. Leedle, Jr.
President and Chief Executive Officer
January 9, 2007

/s/ Mary A. Chaput

Mary A. Chaput
Executive Vice President and Chief Financial Officer
January 9, 2007